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LI61— O-1096 


RAILWAYS   IN   THE 
UNITED  STATES 


THEIR    HISTORY,    THEIR    RELATION    TO    THE 
STATE,  AND  AN  ANALYSIS  OF  THE  LEGISLA- 
TION IN  REGARD  TO  THEIR  CONTROL 


BY 

SIMON  STERNE 

(1839-1901) 


WITH  SUPPLEMENTARY  NOTES  CONTINUING  THE  RECORD 

TO   1 9 1 1 


G.  P.   PUTNAM'S    SONS 

NEW  YORK  AND  LONDON 

^be  fjnfcfterbocftcr  press 

1912 


Copyright,  1912 

BV 

G.  P.  PUTNAM'S  SONS 


Tinbe  ftnfclterbochet  press.  Y^ew  Kocft 


INTRODUCTION 

(         Simon  Sterne  was  bom  in  Philadelphia,  July 
*,  23,  1839,  and  died  in  New  York,  September  22, 
hi   1 90 1.     In  his  professional  career,  which  covered 
^  a  period  of  about  forty  years,  he  secured  a  place 
-^  in  the  first  rank  of  the  Bar  of  New  York,  while  in 
i^  connection  with  the  conduct  of  cases  before  the 
■^  Supreme  Court  in  Washington,  with  arguments 
presented  to  legislative  committees  and  to  national 
commissions,  and  with  a  long  series  of  papers  and 
reports  on  subjects  of  national  importance,  he  won, 
with  the  profession  and  with  intelligent  citizens 
generally  throughout  the  entire  country,  authority 
for  his  opinions,  conclusions,   and  recommenda- 
tions, and  distinction  and  cordial  regard  for  his 
personality. 

There  came  to  him,  in  fact,  as  a  result  of  certain 
of  his  scholarly  and  incisive  reports  on  subjects 
of  world-wide  interest,  a  transatlantic  reputation. 
Mr.  Sterne's  incisive  and  convincing  method  of 
presenting  a  case  brought  to  him  fame  as  a  capable 
S^  and  successful  advocate,  while  the  thoroughness 
of  his  knowledge  and  the  breadth  and  strength  of 
his  reasoning   power  placed  him  in  the  class  of 

iii 


S48764 


iv  Introduction 

great  jurists.  Mr.  Sterne  was,  however,  some- 
thing more  than  an  advocate  and  something  larger 
than  a  jurist.  His  tmselfish  pubHc  spirit  and  dis- 
tinctive service  to  the  community  in  work  for 
the  solution  of  questions  of  the  day  and  of  the 
problems  of  his  generation,  entitled  him  to  be 
described  as  a  great  citizen.  Mr.  Sterne  found 
time,  or  he  made  time,  after  fulfilling,  with  a  high 
standard  of  conscientiousness  and  a  full  measure  of 
success,  his  obligations  to  his  clients,  for  contin- 
uous labor  in  the  arduous  task  of  educating  legis- 
lators and  voters  on  a  long  series  of  puzzling  and 
vital  problems  which  from  year  to  year  called  for 
the  decision  of  legislators  and  for  the  judgment  of 
voters.  Among  the  public  subjects  which  secured 
the  advantage  of  his  study  and  service  may  be 
mentioned  the  following:  Organized  labor  and  its 
relations  to  the  community;  party  politics  and 
the  relation  of  the  conscientious  citizen  to  party 
organization;  municipal  reform  (in  connection 
with  his  interest  in  this  subject,  he  rendered 
practical  service  as  Secretary  of  the  Committee 
of  Seventy  to  the  demoHtion  of  the  Tweed  ring) ; 
proportional  representation;  methods  of  legisla- 
tion; corporations, — their  responsibility  and  their 
relation  to  their  shareholders,  to  their  clients,  and 
to  the  government. 

In  his  study  of  corporations,  Mr.  Sterne  gave 
special  attention  to  the  problems  connected,  on  the 
one  hand,  with  the  management  of  railroads  and 
with  the  relation  of  railroads  to  the  shareholders, 


Introduction  v 

and,  on  the  other,  with  the  pubHc  and  with  the 
government  as  representing  the  pubHc. 

The  present  volume  is  made  up  of  three  papers 
contributed  by  Mr.  Sterne  on  the  subject  of  rail- 
road management  and  of  the  relations  of  railways 
to  the  commimity.  It  covers  the  substance  of 
certain  reports  prepared  by  him  for  commissions 
which  were  investigating  the  work  of  the  railways. 
It  is  some  years  since  these  papers  were  brought 
into  print,  but  the  matters  considered  in  them 
belong  to  a  group  of  questions  that  are  still  await- 
ing solution.  Excepting  for  the  fact  that  the 
problem  is  larger  to-day  than  it  was  when  it  was 
first  taken  up  for  consideration  by  Mr.  Sterne,  and 
that  its  vital  interest  for  the  commiinity  has  been 
more  clearly  emphasized,  the  conditions  differ 
very  little  from  those  that  were  in  force  at  the  time 
the  conclusions  and  recommendations  arrived  at 
by  Mr.  Sterne  were  first  brought  before  the 
public.  The  present  volume  belongs,  therefore, 
to  the  history  of  the  development  and  of  the 
management  of  railways  in  the  United  States,  and 
it  can  be  made  available  to-day  in  helping  to  edu- 
cate the  legislators  and  voters  of  the  present  gener- 
ation whose  judgment  is  required  for  the  solution 
of  railway  problems. 

It  is  seldom  that  a  man  who  is  so  excellently 
qualified  by  natural  capacity,  by  training  and  by 
experience,  to  guide  public  thought  in  regard  to 
such  problems  has  been  able  or  willing  to  give  the 
large  measure  of  time  that  was  given  by  Mr.  Sterne 


vi  Introduction 

to  the  investigation  and  the  study  required  for  a 
thorough  grasp  of  these  problems.  The  papers 
that  he  prepared  in  response  to  the  requirements 
of  his  own  contemporaries  are  too  valuable  to  be 
put  to  one  side,  and  the  publishers  are  well  pleased 
to  have  an  opportunity,  in  printing  the  present 
volume  for  circulation  on  both  sides  of  the  At- 
lantic, to  re-emphasize  the  continued  value  and 
the  importance  of  the  recommendations  of  this 
large-minded  and  large-hearted  citizen. 

G.  H.  P. 
New  York,  Oct.  i,  191 1. 


PREFACE 

An  important  division  of  the  present  volume  is 
made  up  of  an  article  on  "Railways"  contributed 
by  Mr.  Sterne  to  the  Cyclopcedia  of  Political  Science, 
and  included  in  this  work  under  the  courteous 
permission  of  the  publishers,  Charles  E.  Merrill 
&  Co.  This  article,  although  written  years  before 
the  enactment  of  the  Interstate  Commerce  Law, 
contains  information,  suggestions,  and  recom- 
mendations which  will  still  be  found  of  importance 
in  the  consideration  of  the  railway  question.  In 
reprinting  the  article,  the  editor  has  been  able 
(by  the  use  of  additional  material  in  brackets)  to 
supplement  certain  of  the  statements,  bringing 
the  record  down  to  the  present  date. 

The  volume  includes,  further,  an  address  by 
Mr.  Sterne  delivered  in  1895  before  the  Wharton 
School  of  the  University  of  Pennsylvania,  on  the 
relation  of  the  railroads  to  the  State.  At  the  date 
of  the  delivery  of  this  address,  the  Interstate  Com- 
merce Act  had  been  in  operation  for  a  series  of 
years,  and  Mr.  Sterne's  conclusions  as  to  the 
working  of  the  Act,  while  having  special  interest 
for  the  students  of  the  subject  of  that  day,  are  still 

vii 


viii  Preface 

valuable  for  the  consideration  of  legislators  and 
of  voters.  The  problems  touched  upon  in  this 
address  have  still  to  secure  a.  satisfactory  solution. 

The  value  of  Mr.  Sterne's  writings  on  railway 
questions  arises  from  his  intimate  relation  with 
many  of  the  matters  treated  of  by  him.  He  was 
instrumental  in  securing  the  passage  of  the  Act 
establishing  the  Board  of  Railroad  Commissioners 
in  the  State  of  New  York,  having  appeared  for 
many  years  before  the  legislature  of  that  State 
in  advocacy  of  that  Act.  He  was  counsel  for  the 
Chamber  of  Commerce  and  for  the  Board  of  Trade 
and  Transportation,  before  the  Assembly  Com- 
mittee on  Railways  of  that  State,  appointed  by 
the  legislature  in  1879  to  investigate  the  abuses 
alleged  to  exist  in  the  management  of  the  railways 
of  New  York.  The  report  of  that  Committee, 
usually  described  as  the  Hepburn  report,  is  based 
entirely  upon  the  testimony  elicited  by  Mr.  Sterne 
on  behalf  of  the  two  commercial  bodies  just  named, 
and  is  referred  to  in  almost  every  treatise  on  the 
railway  question  since. 

Mr.  Sterne  was  frequently  consulted  in  the  pre- 
paration of  the  Interstate  Commerce  Act,  and 
drafted  some  of  its  provisions.  He  had  previously 
been  asked  to  present  his  views  to  the  Cullom 
United  States  Select  Committee  on  Railways, 
which  had  been  charged  with  the  work  of  prepar- 
ing a  regulating  act,  and  his  address  printed  in 
their  report  throws  much  light  on  the  railway 
situation  of  the  time. 


Preface  ix 

Mr.  Sterne  was  appointed  by  President  Cleve- 
land in  1887  to  investigate  and  report  on  the  rela- 
tion of  the  Governments  of  Western  Europe  to  the 
railways  of  those  countries,  and  his  report  pub- 
lished as  a  government  document  is  generally  cited 
as  authority. 

For  a  sketch  of  his  career  the  reader  is  referred 
to  the  Life  and  Public  Services  of  Simon  Sterne, 
by  John  Foord,  published  by  Macmillan  &  Co., 
London,  1903.  The  following  list  of  Mr.  Sterne's 
writings  relating  to  the  railway  question  is  taken 
from  that  work : 

Argument  for  New  York  Cheap  Transportation 
Association  on  Bill  to  Provide  for  Railway  Com- 
missioners and  for  Minority  Representation  in 
Boards  of  Directors  of  Railroad  Companies. 
March,  1874. 

Argument  for  New  York  Cheap  Transportation 
Association  on  Bill  to  Provide  for  Railway  Com- 
missioners.    March  2^,  1876. 

Argument  before  New  York  Assembly  Com- 
mittee on  Railways  on  Bill  to  Create  a  Board  of 
Railway  Commissioners.     March  28,  1877. 

Speech  before  Assembly  Committee  on  Rail- 
ways to  Organize  a  Board  of  Railway  Commission- 
ers.    September,  1877. 

Argument  before  Assembly  Committee  on  Rail- 
roads on  Bill  to  Create  a  Board  of  Railroad  Com- 
missioners.    March  7,  1878. 

The  Railway  in  its  Relation  to  Public  and  Private 
Interests.     An   Address   before   Merchants   and 


X  Preface 

Business  Men  of  New  York,  at  Steinway  Hall. 
April  19,  1878. 

The  Railway  Problem  in  the  State  of  New  York. 
Opening  Statement  before  Assembly  Special  Com- 
mittee on  Railroads,  on  behalf  of  the  Chamber  of 
Commerce  and  Board  of  Trade  and  Transporta- 
tion of  New  York.     Jime  12,  1879. 

Railroad  Poolings  and  Discriminations.  Infor- 
mation in  Answer  to  Questions  Propounded  by 
the  Chief  of  the  Bureau  of  Statistics,  Treasury 
Department  of  the  United  States.    June  27,  1879. 

Closing  Argument  on  behalf  of  the  Chamber  of 
Commerce  and  Board  of  Trade  and  Transportation 
of  New  York  before  the  Special  Assembly  Com- 
mittee on  Railroads.    December  2  and  3,  1879. 

Address  on  Interstate  Railroad  Traffic,  before 
the  National  Board  of  Trade.    December  11,  1879. 

The  Corporation :  its  Benefits,  its  Evils ;  as  Bene- 
factor, as  Monopolist.  Lecture  delivered  before 
the  General  Society  of  Mechanics  and  Tradesmen. 
January  8,  1880. 

The  Railway  Problem.  National  Quarterly 
Review,  April,  1880. 

Argument  before  U.  S.  Senate  Committee  on 
Commerce  in  relation  to  Bills  referred  to  the  Com- 
mittee, proposing  Congressional  Regulation  of 
Interstate  Commerce.    January  29,  1884. 

The  Railway  Question :  Statement  to  the  United 
States  Senate  Select  Committee  on  Interstate 
Commerce,  at  Fifth  Avenue  Hotel,  New  York 
City.    May  21,  1885. 


Preface  xi 

Report  to  President  Cleveland  on  the  Relations 
of  the  Governments  of  the  Nations  of  Western 
Europe  to  the  Railways.    January  i8,  1887. 

Some  Curious  Phases  of  the  Railway  Question  in 
Europe.  A  Paper  read  at  a  Meeting  of  the  Ameri- 
can Economic  Association,  at  Boston,  May  24, 
1887.   Quarterly  Journal  of  Economics,  July,  1887. 

Railway  Reorganization.  The  Forum,  Septem- 
ber, 1890. 

Recent  Railroad  Failures  and  their  Lessons. 
The  Forum,  August,  1891. 

The  Relation  of  the  Railroads  to  the  State. 
Paper  read  before  the  Wharton  School,  University 
of  Pennsylvania,  November  27,  1895. 

M.  S.  S. 
New  York,  Nov.  15,  191 1. 


CONTENTS 

PAGE 

Introduction iii 

Preface vii 

CHAPTER  I 

History    and    Political    Development    of 

Railways      ......        i 

CHAPTER  II 

Legislation  Concerning,  and  Management 

OF,  Railways  in  the  United  States       .      89 

CHAPTER  III 

The    Relation   of   the  Railroads  to  the 

State 173 

APPENDIX 

A    New   Legal  Maxim — De  Maximis   Non 

Curat  Lex 197 

Index 203 

xiii 


Railways  in  the  United  States 


CHAPTER  I 

History  and  Political  Economy  of  Railways 
importance  of  the  railway 

Of  all  the  factors  that  have  contributed,  during 
this  century,  to  the  growth  of  wealth,  to  the  in- 
crease of  material  comfort,  and  to  the  diffusion 
of  information  and  knowledge,  the  railway  plays 
the  most  prominent  part.  It  has  widened  the  field 
for  the  division  of  employments ;  it  has  cheapened 
production;  it  has  promoted  exchange,  and  has 
facilitated  intercommunication.  In  its  aggregate 
it  represents  a  larger  investment  of  capital  than 
any  other  branch  of  human  activity;  and  the  ser- 
vice that  it  renders  and  has  rendered  to  society  is, 
both  from  industrial  and  commercial  points  of 
view,  greater  than  is  rendered  by  any  other  single 
service  to  which  men  devote  their  activities. 

Down  to  a  very  recent  period  in  his  history, 
man  was  remitted  to  water  routes  mainly  for  the 
transportation  of  goods.  Migration  of  htmters  and 
shepherds  coiild  and  did  take  place  over  land  from 


2         Railways  in  the  United  States 

zone  to  zone  even  without  roads;  but  the  trans- 
portation of  heavy  goods,  such  as  form  the  bulk  of 
the  consumption  of  mankind,  after  the  agricultural 
period  had  fairly  set  in,  was  necessarily  committed 
to  the  waterways.  The  lands  bordering  rivers 
and  shores  were,  therefore,  the  first  to  be  populated 
by  agricultural  tribes,  which,  by  establishing  com- 
mimication  with  other  tribes  by  means  of  the 
waterways,  started  an  exchange  of  products. 
Primitive  commerce  thus  took  its  origin  along  the 
lines  of  rivers  and  the  lagoons  of  coasts,  occupied 
by  tribes  which  were  the  forenmners  of  civilization 
in  its  developed  form. 

History  gives  us  accoimts  of  Assyrian  and  Per- 
sian roads  that  were  at  best  not  more  than  200 
miles  in  length,  which  were  built  for  military  pur- 
poses mainly.  The  Greeks  made  no  contribution 
to  the  world's  great  highways,  the  roads  to  Olym- 
pia  and  Delphos  comparing  unfavorably  with  the 
roads  subsequently  built  by  the  Romans.  Rome 
was  the  first  nation  that  appreciated  the  advan- 
tages of  highways ;  and  its  great  conquests  of  Gaul, 
of  Alemannia,  and  of  Britain  were  due  quite  as  much 
to  the  genius  of  the  Romans  for  road-building  as  to 
their  prowess  and  skill  in  arms.  The  road  made 
the  forest  insecure  to  the  barbarian.  From  the 
fight  in  the  ambush  the  road  compelled  the  fight 
in  the  open,  and  gave  to  the  higher  civilization  an 
immense  advantage  over  the  more  primitive  arms 
and  the  absence  of  tactical  knowledge  of  less  civil- 
ized man.    The  road,  therefore,  was  the  means  of 


The  First  Railways  in  England       3 

conquest  of  the  Roman  civilization  over  barbarism 
in  the  pre-Christian  era. 

In  the  shape  of  the  railway,  the  road  has  become 
the  principal  lever  in  man's  conquest  over  want, 
distress  from  the  accidents  of  birth  in  locality,  and 
the  disadvantages  arising  therefrom.  It  has  dif- 
fused civilization,  and  has  distributed  the  com- 
modities of  any  one  part  of  the  civilized  world  over 
every  other  part,  so  that  wants  and  satisfactions 
become  substantially  equalized  throughout  the 
industrial  world.  Famine  and  great  general  dis- 
tress become  impossible;  by  means  of  the  railway 
a  large  degree  of  well-being  has,  with  but  slight 
modifications,  mainly  due  to  man's  mistaken  legis- 
lation, been  diffused  all  over  the  world. 

The  story  of  the  mechanical  means  by  which, 
in  times  within  the  memory  of  men  of  middle  age, 
this  great  revolution  was  wrought,  has  been  so 
often  told  that  it  seems  almost  superfluous  to 
repeat  it  here;  and  yet  the  requirements  of  the 
title  of  this  chapter  make  it  necessary  that  it  should 
be  briefly  recounted  once  more. 

THE  FIRST  RAILWAYS  IN  ENGLAND 

To  England  the  world  owes  the  railway.  In  the 
coal  districts  of  the  north  of  England,  rails  of  wood 
were  laid  during  the  seventeenth  century  for  the  pur- 
pose of  reducing  the  friction  caused  by  pulling  the 
coal  cart  from  the  workings  to  the  mouth  of  the 
pit.    About  1767  cast-iron  rails  were  introduced. 


4        Railways  in  the  United  States 

Stone  props,  instead  of  timber,  were  used  by  Out- 
ram  for  supporting  the  ends  of  the  rails ;  hence  the 
term,  still  used  in  England,  of  tram  roads. 
Between  1784  and  1820,  Murdock,  Trevethick,  and 
Gray  made  experiments  in  steam  engines.  The 
modern  railway,  however,  both  by  common  con- 
sent and  as  the  verdict  of  engineering  specialists, 
owes  its  origin,  as  a  success  in  transportation,  to 
George  Stephenson,  who  built  engine  No.  I  for 
the  Stockton  &  Darlington  Railway,  which  was 
originally  organized  as  a  horse  railroad,  but  which 
was  authorized  in  1823  to  use  steam  as  a  motive 
force.  Stephenson  himself  acted  as  the  engineer 
on  the  opening  of  the  steam  railroad  line  in  the 
autumn  of  the  year  1825.  Following  this,  came 
the  opening  of  the  Manchester  &  Liverpool  Rail- 
way in  1830,  the  first  engine  of  which  was  also 
built  by  Stephenson,  and  which  from  the  outset 
not  only  proved  the  success  of  the  railway  in  the 
transporting  of  persons  and  goods,  but  also  showed 
it  to  be  a  financial  success  to  its  promoters  and 
stockholders  in  their  investment  of  capital. 
Within  the  first  year  after  the  opening  of  the 
Manchester  &  Liverpool  line,  upward  of  500,000 
passengers  were  carried. 

OPPOSITION  TO  THE  RAILWAY 

That  the  railway  was  not  introduced  without 
much  opposition  would  go  almost  without  saying. 
The  large  interest  in  the  stage-coaches  had  either 


Development  of  the  English  Railway    5 

to  be  conciliated,  bought  off,  or  fought.  The  canal 
proprietors,  who  had  just  gotten  well  under  way  with 
their  canal  projects,  and  were  making  considerable 
sums  of  money  out  of  them  when  this  formidable 
rival  appeared  upon  the  field,  were  opposed  to  the 
competition  of  the  railway.  In  the  third  place,  the 
rich  landed  proprietor  regarded  the  railway  as  a 
devouring  monster,  which  would  not  only  destroy 
the  value  of  his  fields,  but  which  threatened  to 
destroy  his  game  preserves  and  his  beautiful  lawns 
and  flower  beds,  and,  with  but  few  exceptions, 
the  rich  landed  proprietor  opposed  the  railway. 
But  stronger  than  all  these  special  interests  in 
opposition  to  the  railway,  was  the  conservative 
spirit  of  the  English  people,  which  found  expres- 
sion in  the  British  Quarterly  Review,  in  the 
words:  "We  should  as  soon  expect  the  people  of 
Woolwich  to  suffer  themselves  to  be  fired  off  upon 
one  of  Congreve's  ricochet  rockets,  as  to  trust 
themselves  to  the  mercy  of  such  a  machine  going 
at  such  a  rate." 

DEVELOPMENT  OF  THE  ENGLISH   RAILWAY 

London  was  first  connected  by  rail  with  the  in- 
terior of  England  in  1833,  when  the  through  line  to 
Birmingham  was  completed.  From  that  time  forth 
English  railways  rapidly  developed,  so  that  at  the 
close  of  1 88 1  the  railway  system  of  the  United 
Kingdom  consisted  of  18,180  miles  in  a  country  of 
120,000  square  miles  in  area;  representing  a  total 


6         Railways  in  the  United  States 

capitalization  of  £746,000,000,  and  carrying  annu- 
ally 623,000,000  passengers,  with  yearly  receipts 
of  £64,000,000.  [In  1908,  the  mileage  was  23,205, 
capitalization  £1,310,533,212,  passengers  carried, 
1,278,115,488,  and  annual  receipts  £119,894,327. 
See  Statesman's  Year  Book  for  1 910,  p.  81.] 

THE  EARLY  RAILWAYS  IN  THE  UNITED  STATES. 

The  success  of  the  Stockton  &  Darlington  experi- 
ment produced  in  the  United  States  a  greater  effect 
than  it  did  in  England.  Before  the  Liverpool  & 
Manchester  line  was  built,  in  1830,  many  lines  of 
rail  were  already  projected  in  the  United  States, 
and  as  early  as  1825  what  is  now  the  New  York 
Central  system  was  begun  to  be  built  under  the 
charter  of  the  Mohawk  &  Hudson  Railroad.  In 
1827,  Massachusetts  authorized  the  appointment 
of  a  board  of  commissioners,  and  caused  surveys  to 
be  made  of  the  most  practicable  routes  for  a  rail- 
road from  Boston  to  the  Hudson  River  at  or  near 
Albany.  Two  reports  were  made  by  these  com- 
missioners in  the  winter  of  1829,  giving  a  survey  of 
the  road,  accompanied  with  the  recommendation 
to  make  the  commencement  of  the  railroad  on  both 
the  routes  at  the  charge  of  the  commonwealth. 
In  1830  and  1831  the  Boston  &  Worcester  Railroad 
and  the  Boston  &  Providence  Railroad  companies 
were  chartered,  and  in  1832  work  was  already 
under  way  to  connect  Boston  with  New  York. 
Pennsylvania  started  its  railway  system  in  1827, 


Early  Railways  in  the  United  States      7 

and  Maryland  and  South  Carolina  in  1828.  The 
Baltimore  &  Ohio  railroad  system  was  commenced 
in  1828.  In  1830,  almost  simultaneously  with  the 
opening  of  the  first  railroad  line  in  England,  rail- 
ways were  being  opened  in  the  United  States  in 
every  direction.  The  growth  of  the  railway  sys- 
'tem  in  the  United  States  is  best  indicated  by  the 
facts,  that  in  1828  there  were  three  miles  of  rail- 
way; in  1830,  forty-one  miles;  in  1840,  2200;  in 
1850,  7500;  in  i860,  29,000;  in  1870,  49,000;  in 
18^0,  93,671;  and  at  the  close  of  1881,  104,813 
miles.  In  1882  the  increase  was  about  13,000  miles, 
jnaking  a  grand  total  mileage  in  the  United  States 
at  the  beginning  of  the  year  1883  of  about  115,000 
miles  of  rail.  [In  1909  the  total  mileage,  according 
to  Poor's  Manual  for  1910,  was  236,378  miles.] 

The  capital  account  at  the  close  of  1881  shows  a 
total  of  $6,815,000,000.  Adding,  for  1882,  $40,000 
a  mile  for  about  13,000  miles,  increases  the  total 
capitalization  $520,000,000,  making  a  grand  total 
of  about  $7,335,000,000.  [In  1909  the  total  capi- 
talization, according  to  Poor's  Manual  for  1910,  was 
$17,942,282,575.]  The  gross  earnings  of  the  rail- 
ways of  the  United  States  in  1881  amoimted  to 
$725,000,000,  $552,000,000  of  which  was  from 
freight  earnings,  and  $173,000,000  from  passen- 
gers; resulting  in  the  payment  of  a  dividend,  over 
and  above  fixed  charges,  of  $93,344,200  interest  on 
the  bonds  absorbed,  of  net  earnings  of  $276,654, 119, 
the  sum  total  of  $128,587,302,  in  addition  to  what 
went  into  other  sources.     In  188 1  the  tonnage 


8         Railways  in  the  United  States 

transported  was  not  less  than  315,000,000  tons. 
[In  1909,  the  gross  earnings  were  $3,418,677,538, 
$1,677,614,678  being  from  passengers,  and  about 
$1,740,000,000  from  other  sources.  The  freight 
tonnage  transported  was  1,556,559,741  tons.  See 
Statistics  of  the  Railways  in  the  United  States,  for 
1909,  pp.  59,  72,  74-J 

THE  RAILWAY  IN  FRANCE 

France  was  much  slower  than  England  and 
America  in  adopting  the  railway  system.  In- 
dependent of  the  fact  that  the  Latin  race  is 
not  so  alert  in  adopting  labor-saving  contriv- 
ances as  the  Anglo-Saxon,  there  was  a  cause 
for  the  slower  adoption  of  the  railway  in  that 
country,  as  it  was  better  supplied  with  high- 
ways than  England,  and  transportation  charges 
in  the  early  half  of  this  century  were  comparatively 
much  cheaper  in  France  than  in  England.  With 
the  exception  of  some  few  small  lines,  there  was 
no  development  of  the  railway  system  in  France 
until  about  1842,  when  nine  great  lines  were  estab- 
lished, which  subsequently  were  amalgamated 
into  six.  These  at  the  present  day  [in  1883,  and 
still  in  1908]  divide  and  occupy  between  them 
substantially  the  whole  French  territory.  Besides 
these,  however,  there  are  a  few  state  lines  and 
branch  roads  of  insignificant  importance.  The 
names  of  these  six  great  lines  are  Chemin  de  fer  du 
Nord,  de  VOuest,  de  I' Est,  d'Orleans,  Paris-Lyons- 


Netherlands  9 

Mediterranee  and  du-Midi.  The  extension  of  the 
railway  system  in  France  has  not  been  so  great 
as  it  has  been  in  England  or  the  United  States, 
owing  to  circumstances  which  will  be  referred  to 
later.  [The  length  of  French  lines  open  for  traf- 
fic in  1908  was  25,060  miles  of  line  of  general 
interest,  and  4968  miles  of  local  interest.  The 
concessions  granted  to  the  six  great  companies 
expire  at  various  dates  from  1950  to  i960;  the 
periods  of  state  guarantee  of  four  of  these  termi- 
nate at  the  end  of  19 14,  and  of  the  others  in  1934 
and  1935.  See  Statesman's  Year  Book  for  1910, 
p.  776.] 

BELGIUM   RAILWAYS 

The  railway  system  of  Belgium  is  2000  miles 
in  extent,  in  a  country  embracing  an  area  of 
11,373  square  miles.  Two  thirds  of  the  whole  of 
the  railway  mileage  in  Belgium  is  composed  of 
lines  worked  by  the  state,  and  one  third  by  private 
companies.  [In  1908,  the  mileage  was  2913 
miles,  2530  of  which  were  worked  by  the  state. 
See  Statesman's  Year  Book  for  1910.] 

NETHERLANDS 

In  the  Netherlands,  with  an  area  of  13,000 
square  miles,  there  are  1230  miles  of  road,  of 
which  the  state  owns  630  miles,  and  private 
companies  600.  [In  1908,  the  mileage  was  1908 
miles.    See  Statesman' s  Year  Book  for  1900,  which 


10      Railways  in  the  United  States 

adds  that  all  railway  companies  are  private, 
and  that  there  is  a  state  railway  company, 
only  so  called  because  the  road  is  owned  by  the 
state.] 

GERMANY,     AUSTRIA,    AND     RUSSIA 

Germany,  Austria,  and  Russia  were  somewhat 
behind  the  western  nations  of  Europe  in  their  rail- 
way development,  but  within  the  decade  before 
1880  an  enormous  extension  in  their  development 
took  place,  for  the  purpose  of  competing  with 
France  for  the  eastern  trade,  as  well  as  for  the  pur- 
pose of  military  operations  of  an  offensive  and  de- 
fensive character.  In  the  Franco-Prussian  War  the 
seizure  and  management  of  the  railroads  by  the 
state,  for  the  purpose  of  aiding  strategical  move- 
ments, formed  so  important  an  element  in  the 
military  operations  of  Prussia  against  France,  that 
throughout  central  Europe  a  large  number  of  lines 
have  since  been  built,  to  secure  strategical  ad- 
vantages. 

RAILWAY  MILEAGE 

The  following  table,  taken  from  Spofford's 
American  Almanac  for  1883,  gives  the  statistics 
of  the  railways  of  the  world  to  Jan.  i,  1881.  [This 
is  supplemented  by  a  table  of  mileage  for  1909, 
collated  in  Appleton's  American  Year  Book  for 
1 910,  and  for  1908  in  the  Statesman's  Year  Book 
for  1910: 


Railway  Mileage 


II 


)09 

405 

2,300 

100 

184 

171 

16 

3.176 


Miles.  Miles. 

1.  North  America. 

United  States  (1883) 1 17.71 7       [In  1909         240,839 

Canada 7.894         "      "               24,731 

Mexico 2,293         "      "              15.293 

Total  North  America .  .  127,830                              280,863 

2.  Middle  America. 

Costa  Rica 105 

Cuba  (Spanish) 858 

Honduras 56 

Jamaica  (British) 25 

Nicaragua 34 

Trinidad.. 16 

Total  Middle  America. .  i  ,094 

3.  South  America, 

Argentine  Republic 1,619 

Bolivia 31 

Brazil 1,899 

Chili 1,193 

Columbia  (U.  S.  of ) 99 

Equador 75 

Guiana  (British) 21 

Paraguay 44 

Peru 2,030 

Uruguay 235 

Venezuela 70 

Total  South  America. . .  7,316                                35.642 

4.  Europe. 

Austria-Hungary ii,738        In  1908           25,852 

Belgium 2,597          "      "               2,913 

Denmark 978          "      "               2,141 

France 17.027          "      "             29,716 

Germany 21,565          "      "             36,686 

Great  Britain  and  Ireland  18,168          "      "             23,205 

Carried  forward  72,073                               120,513 


[n  1909 

16,033 

H             li 

500 

II        II 

12,209 

II        II 

2,244 

II        II 

510 

II         II 

316 

II        II 

95 

II        II 

155 

11        II 

1,500 

II        II 

1.540 

11        11 

540 

12      Railways  in  the  United  States 


Brought  forward 

Greece 

Italy 

Netherlands 

Norway 

Portugal 

Roumania 

Russia 

Spain 

Sweden 

Switzerland 

Turkey 


Miles. 
72,073 

7 

5410 

1,227 

946 

1.039 
916 

14,067 

3.849 

3.836 

1,636 

889 


In  1908 


Total  Europe 105,895 


Miles. 

120,513 

771 

10,388 

1,912 

1,607 

1,690 

1.995 

41.136 

9,227 

8,321 
2,763 
1.239 

201,562 


5.  Asia. 

Ceylon  (British) .... 

China 

India  (British) 

Japan 

Java  (Dutch) 

Philippines  (Spanish). 
Turkey  in  Asia 


Total  Asia , 


136 

In  1907 

566 

"  1906 

3,746 

9,872 

"  1908 

30,576 

96 

"  1907 

4,898 

3,498 

<<   i< 

1.536 

279 

"  1908 

292 

250 

"  1909 

2,836 

14,131 


44.450 


6.  Africa. 

Algeria  (French) 

Cape  Colony  (British), 
now  Cape  of  Good  Hope 

Egypt 

Mauritius 

Namaqualand 

Natal  (British) 

Tunis 

Total  Africa 


804        In  1908 


905 

3.757 

942 

3.503 

66 

119 

95 

lOI 

978 

155 

664 

3.068 


2,000 


11,021 


The  Capitalization  of  Railways       13 

Miles.  Miles. 

7.  Australia. 

New  South  Wales 1,183        In  1908  3,472 


New  Zealand 1,258 

Queensland 801 

South  Australia 832 

Tasmania 178 

Victoria 1.247 

Western  Australia 93 


2,763 
3.559 
1.879 
463 
3.396 
1.943 


5.592  17.475 


Grand  Total 264,826  594.189] 

THE    CAPITALIZATION    OF    RAILWAYS 

In  England,  by  reason  of  the  high  price  of  land 
which  the  railways  must  occupy  and  acquire,  and 
a  rigid  application  of  the  rule  requiring  the  rail- 
way corporation  to  pay  for  consequential  and 
indirect  damages,  its  railways  represent  the  maxi- 
mum of  capitalization.  Taking  this  extreme  of 
capitaHzation  of  the  English  railways,  of  $200,000 
a  mile,  as  a  maximum,  and  the  capitalization  of 
the  cheapest  American  railways,  of  $25,000  a  mile, 
including  equipment,  as  a  minimum  capitalization, 
it  is  fair  to  say  that  the  average  capitalization  of 
railways  the  world  over  is  not  less  than  $50,000  per 
mile.  Upon  that  basis  the  264,000  miles  of  rail- 
way in  the  world  would  represent  a  total  valuation, 
in  the  way  of  capital  invested  in  these  vehicles  and 
means  of  intercommunication,  of  $13,200,000,000. 
[Poor's  Manual  for  1910  gives  the  total  stock 
bond  and  capitalization  of  the  236,378  miles  of 
railways  of  the  United  States  as  $17,942,282,575, 
or  at  the  rate  of  $75,905  per  mile.     The  States- 


14       Railways  in  the  United  States 

man's  Year  Book  for  1910  gives  the  mileage  of 
railways  of  Great  Britain  and  Ireland  at  the  end  of 
1908  as  23,205,  with  a  capitalization  of  £1,310,- 
533,212,  or  at  the  rate  of  $273,000  per  mile.]  I  J 
Compared  with  all  the  debts  of  all  the  nations 
of  the  earth,  amounting,  in  round  numbers,  to 
$27,000,000,000,  it  appears  that,  within  the  period 
of  the  last  fifty  years  [before  1880],  the  industrial 
world  has  invested  a  capital  in  means  of  inter- 
communication alone,  of  about  one  half  the  sum 
that  has  been  raised  by  way  of  loans  for  the  pur- 
pose of  carrying  on,  during  the  last  few  hundred 
years,  all  the  wars,  and  constructing  all  the  internal 
improvements,  of  all  the  nations  of  the  earth. 
[According  to  the  World's  Almanac  for  1909  and 
191 1,  the  world's  national  debts  in  1909  totalled 
$36,548,455,489,  and  in  191 1  over  $39,000,000,000. 
The  total  mileage  of  railways  in  1908  was  572,550, 
and  the  total  capitalization  in  1908  was  estimated 
at  $46,000,000,000,  or  largely  in  excess  of  the  total 
debts  of  the  world.] 

THE  GOOD  AND  EVIL  SIDE  OF  RAILWAY  GROWTH 

So  great  a  manifestation  of  a  social  power,  repre- 
senting, as  it  does,  a  growth  unprecedentedly  rapid, 
must  and  does  exhibit  many  peculiar  phases  of 
social  and  politico-economic  problems,  and  must 
bring  with  it  evils  incident  to  its  own  existence 
which  demand  some  form  of  intelligent  treatment 
and  cure.    It  would,  indeed,  be  remarkable  and 


Effect  of  Growth  15 

without  parallel,  that  any  human  instrumentality, 
however  beneficial,  could  grow  to  such  enormous 
proportions  without  having  some  shadow  side  in 
the  way  of  defects,  evils,  and  even  crimes  attendant 
upon  and  concomitant  to  the  immense  good  it 
brings  forth.  The  first  effect  of  the  development 
of  the  railway  system  on  the  intercommunication 
of  men,  has  been  to  give  a  great  impetus  to  the 
transmission  of  intelligence  and  personal  inter- 
course. One  need  but  read  the  letters  of  Madame 
de  Sevigne  to  see  what  an  arduous  task  it  was  to 
travel  during  the  middle  of  the  seventeenth  cen- 
tury. When  she  proposed  to  set  out  to  visit  her 
daughter,  200  miles  distant,  she  prepared  her  will, 
and  set  about  the  journey  with  a  solemnity  of 
mind  somewhat  akin  to  that  felt  by  a  person  at 
the  present  time  who  is  about  to  investigate  the 
sources  of  the  Nile,  or  make  a  voyage  to  the  North 
Pole.  But  one  need  not  go  back  so  far  for  examples 
of  the  dangers,  both  anticipated  and  real,  that 
down  to  within  this  century  beset  the  traveller. 
The  Newgate  calendar  is  part  of  the  history  of  the 
stage-coach,  almost  to  the  very  time  when  railways 
were  introduced.  Highwaymen  scoured  the  coun- 
try round,  within  a  radius  of  ten  miles  from 
London.  Hounslow  Heath,  Black  Heath,  Epping 
Forest,  Clapham  Commons,  all  embraced  post 
routes,  and  were  the  scenes  of  the  exploits  of  many 
a  man  who,  within  this  century,  came  to  his  end  at 
Tybiu-n  and  at  Newgate.  The  time  occupied  in 
moving  from  great  centres  to  the  capital  is  indi- 


i6      Railways  in  the  United  States 

cated  by  an  advertisement  of  the  York  and  London 
stage  coach  in  1706,  in  which  the  advertisers 
promise  to  be  in  London  on  the  fifth  day  out  from 
York,  and  to  run  from  London  to  York  in  four 
days. 

It  is  said  by  Francis,  in  his  History  of  the  English 
Railway,  that  the  abdication  of  James  IL  was  not 
heard  of  in  the  Orkneys  until  three  months  after 
his  flight.     He  says: 

"In  the  seventeenth  century  the  charge  for 
conveyance  amounted,  in  many  instances,  to  a 
prohibition.  Heavy  goods  cost,  from  London 
to  Birmingham,  £7  a  ton;  from  London  to  Exe- 
ter, £12  were  paid.  Coal  was  rarely  seen,  save  in 
the  neighborhood  of  the  district  which  produced 
it.  Pack-horses,  strong,  enduring  animals,  the 
breed  of  which  is  now  extinct,  were  employed  to 
carry  the  produce  of  the  weaver's  patient  skill,  the 
pottery  of  Staffordshire,  and  even  the  coals  of 
Newcastle,  laboring  along  heavy  roads,  toiling 
beneath  a  burning  sun,  wending  their  way  through 
bare,  bleak  moors,  down  steep  descents,  by  danger- 
ous rivers,  on  narrow  tongues  of  land,  between 
masses  of  mire  and  mud  so  deep  as  to  be  dangerous 
if  they  entered — a  leading  horse  bearing  bells  to 
intimate  the  approach  of  the  party  he  heralded. 
The  group  formed  a  most  picturesque  accompani- 
ment to  the  wild,  weird  scenes  it  enlivened.  .  .  .  The 
private  carriage,  if  such,  indeed,  should  chance  to 
approach,  left  the  track  at  the  risk  of  never  return- 
ing to  it,   while   more   numerous  parties  either 


Influence  on  Cost  17 

resisted  the  cavalcade,  or  moved,  like  the  solitary- 
passenger,  out  of  the  way,  as  their  weakness  or 
strength  might  indicate.  With  such  difficulties 
before  them,  few  persons  left  their  homes  but  those 
who  were  called  by  some  most  special  reason." 
Macaulay  says  that  the  inhabitants  of  London, 
in  the  seventeenth  century,  were  farther  removed 
from  Edinburgh  than  they  are  now  from  Vienna; 
and,  indeed,  it  might  be  said,  farther  removed  from 
Edinburgh  than  they  are  now  from  St.  Petersburgh 
or  New  York.  The  reason  why,  to  this  very  day, 
Parliament  sits  in  summer,  is  because  the  roads  in 
England  were  so  bad,  and  the  difficulty  and  danger 
of  getting  to  the  capital  so  great,  that  it  was 
impossible  in  the  midwinter  months  to  convene  a 
Parliament  with  any  expectation  of  having  the 
members  attend  from  the  north,  from  the  extreme 
west  of  the  kingdom,  from  Scotland,  or  from  Ire- 
land. 

INFLUENCE  OF  TRANSPORTATION  ON  COST  OF 
COMMODITIES 

In  the  early  part  of  the  nineteenth  century  the 
difficulty  of  moving  bulky  articles  was  somewhat 
overcome  by  MacAdam's  invention  for  improving 
highways,  and  by  the  introduction  of  canals.  Part 
of  the  politico-economic  results  in  the  way  of 
cheapening  and  distributing  products  was  already 
under  way  by  the  creation  of  artificial  waterways, 
which  were  introduced  into  England,  France,  and 
Spain  in  imitation  of  the  Netherlands. 


i8      Railways  in  the  United  States 

In  fixing  the  price  for  the  sale  of  every  commod- 
ity, the  element  of  cost  of  transportation  must  be 
considered,  with  but  the  very  slight  exception  of 
articles  that  are  consumed  on  the  spot  where 
created,  like  the  food  raised  by  the  farmer  for  his 
own  family.  As  the  great  bulk  of  commodities 
consumed  in  this  world  is  transported  from  one 
point  to  another,  it  is  obvious  at  once  how  impor- 
tant is  the  r61e  that  transportation  plays  in  the 
work  of  production  as  well  as  of  consumption. 
Indeed,  transportation  is  a  factor  which  enters  into 
both  the  consumption  and  production  of  commodi- 
ties as  largely  as  money  does  into  their  exchange, 
and  it  plays  even  a  more  important  role  than 
money  does  in  determining  their  price. 

The  certainty,  diminished  cost,  and  rapidity  with 
which  commodities  could  be  transported  from 
place  to  place  by  the  introduction  of  the  railway, 
not  only  increased  the  exchangeability  of  commod- 
ities, but  also  made  it  possible  to  forward  to  distant 
places,  theretofore  unsupplied  with  such  commod- 
ities, products  which  formerly  were  consumed  only 
at  the  spot  where  created,  and  the  increased  faciUty 
of  transportation  created  values  which  could  not 
have  existed  at  all  but  for  such  improved  methods 
of  transportation.  A  familiar  illustration  of  this 
fact  is  the  great  industry  which  had  been  created 
in  Brittany  and  Normandy  in  producing  eggs  and 
butter  for  the  London  market,  and  even  vegetables 
for  Edinburgh's  daily  consumption.  Before  the 
existence  of  the  railway,  the  rich  dairies  of  Nor- 


Influence  on  Cost  19 

mandy  could  give  to  Normandy  alone  the  enjoy- 
ment of  fine  butter,  and  there  was  no  possibility 
for  the  Londoner  or  the  Scotchman  to  enjoy  a 
French  egg  or  a  pat  of  French  butter  at  his  break- 
fast table  without  going  personally  to  France. 
For  600  or  1000  miles  the  railway  now  carries  the 
Frenchman's  dairy  and  farmyard  products  as 
easily  as  to  the  neighboring  town.  The  prices  of 
those  commodities  have  gone  up  in  France,  because 
a  market  has  been  found  for  them. 

But,  what  is  of  greater  importance,  their  enjoy- 
ment is  possible  to  a  greater  number  of  people. 
Waste,  that  great  destroyer  of  human  effort,  is 
eliminated,  and  unsatisfied  wants  in  the  particulars 
above  mentioned  can  no  longer  exist.  Through 
the  instrumentality  of  the  railway,  the  law  of 
competition  gets  its  widest  possible  extension, 
restrained  and  hampered  only  by  limitations  put 
by  human  law,  in  the  way  of  tariffs,  on  the  full 
enjoyment  of  the  results  of  such  competition. 
With  the  extension  of  the  lines  of  commerce,  within 
which  a  given  commodity  can  find  its  market, 
comes  an  increased  demand,  which  not  only  again 
reacts  to  produce  an  increased  supply,  but  equal- 
izes prices,  so  that  the  element  of  chance  is 
eliminated  as  much  as  possible  from  human  affairs. 
French  history  gives  us  the  fact,  that  during  a 
period  of  300  years,  there  were  about  100  years  of 
famine  in  one  or  another  part  of  France,  while 
contemporaneously  absolute  abundance  prevailed 
in  other  districts.      Such  a  condition  of  things, 


20      Railways  in  the  United  States 

even  long  before  the  railway,  has  not  only  be- 
come impossible  for  France  by  the  development  of 
means  of  intercommunication,  but  is  now  made 
impossible  the  world  over  by  reason  of  the  railway, 
connected  with  rapid  steam  communication  by 
sea.  That  periods  of  famine  and  distress  arise  in 
India,  in  an  abnormally  situated  community  Hving 
upon  one  vegetable  product  alone,  and  prevented 
by  superstition  from  varying  their  food,  does  not 
diminish  the  force  of  the  fact  that  such  things  are 
impossible  in  any  community  which  has  emerged 
from  a  semi-barbaric  condition.  Also,  in  India, 
the  periods  of  distress  are  rapidly  diminishing,  and 
are  becoming  considerably  less  in  intensity  when 
they  occur.  An  exaggerated  picture  of  the  evils 
incident  to  the  present  civilization  is  given  by  the 
colors  in  which  the  sensational  modern  press  paints 
the  distress  and  crimes  of  the  day;  and  the  inquisi- 
torial and  searching  character  of  the  correspond- 
ence produces  a  vividness  which  makes  the 
superficial  observer  imagine  that  both  crime  and 
suffering  have  increased,  whereas,  in  point  of  fact, 
they  are  constantly  decreasing.  What  has  in- 
creased is  the  power  and  opportimity  for  observa- 
tion and  giving  detailed  results  of  such  observation 
to  the  public  eye  and  ear. 

That  the  several  results  of  the  introduction  of 
the  railway  have  become  a  common  heritage  of  the 
great  mass  of  mankind,  and  that  its  introduction 
benefits  the  laborer  more  than  it  does  the  million- 
aire, is  indicated  by  the  fact  that  the  cost  of 


Influence  on  Cost  21 

transportation,  which  bears  a  greater  and  greater 
relation  to  commodities  which  are  bulky  and 
coarse  and  of  general  consumption,  and  forms  a 
less  and  less  ratio  or  element  of  expense  in  com- 
modities which  are  easy  of  transportation,  and  not 
bulky  in  form,  has  been  considerably  lessened  by 
the  railway.  Even  during  the  Middle  Ages  the 
laces  of  Mechlin  and  of  Brussels,  and  the  tapes- 
tries of  the  Netherlands  and  of  France,  could  be 
transported  the  world  over.  At  the  courts  of 
Europe  specimens  of  the  art  handicraft  of  the  then 
known  world  could  be  found.  Gems,  laces,  and 
velvet  could  be  transported  on  horseback  without 
difficulty;  but  no  food  or  clothes  produced  for 
common  use  or  wear  could  be  brought  from  a  dis- 
tance, the  cost  of  transportation,  added  to  the 
original  cost  of  the  article,  increasing  the  price  to 
such  an  extent  as  to  make  it  beyond  the  means  of 
the  common  man.  Hence  the  individual  born  to  a 
particular  spot  of  earth,  became  the  inheritor 
of  all  the  evils  and  all  the  disadvantages  incident 
to  that  spot.  What  the  average  man  could  not 
there  produce,  was  not  for  him  to  enjoy.  What 
his  neighbor  could  not  produce  for  him,  he  could 
not  obtain  in  exchange  for  his  own  products.  The 
cost  of  transportation  served  as  an  impassable 
barrier  to  placing  himself  in  more  comfortable 
condition,  either  by  removal  to  lands  more  favor- 
ably situated  as  a  market  for  his  labor,  or  by  bring- 
ing within  his  reach  such  more  favorable  condition 
in  the  shape  of  the  importation  of  commodities. 


22      Railways  in  the  United  States 

But  even  in  India,  the  famine  of  1873-4  ^^.s 
counteracted,  the  distress  overcome,  and  the  con- 
sequences removed,  with  a  rapidity  never  before 
known  in  Indian  history.  Theretofore,  the  distress 
occasioned  by  a  famine  ordinarily  lasted  upward  of 
ten  years.  In  the  following  year  (1875),  when  the 
actual  season  of  dearth  ended  in  India,  and  some 
favorable  results  in  the  way  of  weather  and  crops 
were  produced,  the  consequences  of  the  famine 
were  quite  removed.  Neumann  is  authority  for 
the  statement  that  in  consequence  of  the  develop- 
ment of  the  railway  system,  upward  of  2 1 ,000,000 
hundredweight  of  rice  was  distributed  within 
eleven  months  by  the  English  Government  during 
the  prevalence  of  the  famine.  Even  in  the  decade 
1860-70,  before  the  railway  system  was  developed 
in  India,  several  years  of  dearth  and  of  famine 
occurred  in  the  same  district,  and  it  is  estimated 
that  from  two  and  a  half  to  three  and  a  half  million 
people  died  during  that  period.  The  drought  and 
failure  of  crops  in  1873  and  1874  were  greater  than 
before,  and  authentic  accounts  show  us  that  there 
were  not  at  the  utmost  more  than  20,000  persons 
whose  death  can  be  attributed  directly  to  insuffi- 
cient food.  The  accessibility  of  the  newspaper 
correspondent,  by  means  of  the  railway,  enabled 
the  world  at  large  more  thoroughly  to  realize  the 
distress  that  occurred  during  1873  and  1874,  t»ut 
the  actual  death-rate,  as  compared  with  that  from 
i860  to  1870,  from  famine,  was  not  one  per  cent. 

As  the  difficulty  of  transportation  is  an  element 


Production  Increased  23 

of  cost  in  the  exchange  of  commodities,  a  saving  in 
the  cost  of  transportation,  producing  an  increased 
market,  results  also  in  the  additional  effect  that 
the  capital  which  otherwise  would  be  expended 
upon  transportation  is  available  for  other  purposes. 
It  is  true  that  the  medium  of  transportation  is 
in  itself  a  costly  contrivance,  and  that  it  has 
swollen,  as  we  have  seen,  to  $13,000,000,000  for 
railway  purposes  alone;  but  as  the  great  majority 
of  these  enterprises  pay  a  return  to  those  who  have 
invested  their  moneys,  the  capital  is  productively 
employed,  profitably  expended,  and  constantly 
being  reproduced  by  the  return.  The  railway, 
therefore,  in  its  general  effects  upon  mankind  and 
the  investors,  has  been  a  blessing. 

PRODUCTION  INCREASED  BY  RAILWAYS 

'  The  general  result  of  railway  construction  has 
been  an  enormous  increase  of  production  and  pro- 
ductive power  on  the  part  of  mankind,  and  has 
also  resulted  in  an  enormous  development  in  the 
character  of  productions,  particularly  in  the  di- 
rection of  producing,  for  general  and  popular 
consumption,  commodities  which,  until  the  railway 
was  introduced,  were  in  many  cases  impossible  of 
transportation,  except  along  the  lines  of  waterway. 
One  of  the  most  interesting  illustrations  of  the 
condition  of  life  before  the  railway  is  given  by  the 
philosophical  agriculturist.  Von  Thiinen,  and 
quoted  by  Sax,  in  which,  assuming  as  a  central 


24      Railways  in  the  United  States 

point  a  city,  he  places  around  it,  within  a  radius  of 
fifty  miles,  an  agricultural  district,  composed  of 
six  zones,  for  products  which  the  farmer  may  raise 
with  profit  for  the  consumption  of  the  city.  In  the 
first  zone,  lying  closest  to  the  city,  he  places  the 
production  of  garden  vegetables,  fruit,  and  milk ;  in 
the  second  zone  he  places  the  production  of  com- 
modities which  cost  more  to  transport,  such  as 
potatoes,  carrots,  etc.  In  the  third  zone  the  pro- 
duction of  wood  is  placed.  In  the  next  three 
zones,  in  certain  proportions  entered  into  too 
minutely  for  citation  here,  cereal  productions  and 
animals  are  put. 

The  vast  benefit  conferred  by  freedom  to  culti- 
vate land  with  alternate  crops  and  with  whatever 
suits  the  land  best,  has  become  possible  only  by  the 
increase  of  means  of  transportation.  Doubtless 
the  rules  laid  down  by  Von  Thiinen  were  prac- 
tically adopted  in  consequence  of  difficulties  of 
transportation,  which,  once  wiped  out,  now  not 
only  make  the  farm  fifty  miles  remote  as  profitable 
and  valuable  as  the  one  close  to  the  city,  but 
enable  the  latter  in  compensation  to  produce 
whatever  the  land  is  best  fitted  to  produce,  instead 
of  simply  that  which  proximity  to  the  market 
compels.  In  other  words,  the  natural  advantages 
of  production  have,  by  the  wiping  out  of  the 
element  of  transportation,  or  rather,  reducing  it  to 
a  minimum,  been  permitted  to  come  into  full  play. 
The  producer  was  conditioned,  by  proximity  to  or 
remoteness  from  the  market,  as  to  the  proper  use  of 


Increased  Production  25 

his  instrument,  the  soil.  He  now  produces  that 
which  his  soil  is  best  capable  of  producing:  all  the 
markets  have  become  near,  by  the  railway.  No 
better  illustration  can  be  found  of  this  than  in  the 
development  of  the  fresh  fruit  industry  of  the 
world  within  recent  times.  With  the  exception  of 
those  that  ripen  on  the  stem  when  detached  from 
the  tree,  as  oranges  and  bananas,  but  a  very  few 
years  ago  the  consumption  of  fruit  other  than  at 
the  place  where  it  was  grown  was  almost  impos- 
sible. To-day,  however,  the  fruit  of  California 
can,  in  lusciousness  and  perfection,  be  better  found 
on  the  tables  of  the  inhabitants  of  New  York  and 
London  than  in  San  Francisco.  Thus  the  trade  in 
products  which  require  to  be  consumed  fresh  has, 
by  the  increase  of  means  of  communication  intro- 
duced by  the  railway,  been  added  to  the  commerce 
of  the  world;  and  a  vast  addition  to  the  world's 
wealth  has  been  made  by  the  exchange  ability  of 
natural  products  which  either  would  not  have  been 
produced  at  all,  or  v/hich,  being  produced  in  excess 
of  the  local  demand,  would  have  rotted  upon  their 
stems  or  upon  the  ground. 

A  like  addition  has  been  made  to  the  commerce 
of  the  world  in  the  power  of  transporting  cereals 
and  bulky  productions,  such  as  grain,  iron,  wood, 
etc.  The  time  is  not  far  behind  us  when  the 
locomotives  of  Illinois  burned  com  for  fuel,  in 
consequence  of  the  high  price  of  fuel,  and  the  low 
price  of  com ;  and  the  high  price  of  the  one  and  the 
low  price  of  the  other  arose  from  the  insufficient 


26      Railways  in  the  United  States 

means  of  transportation  of  both  to  the  localities 
where  they  could  best  be  used. 

The  diminishing  of  the  cost  and  the  increasing  of 
the  facilities  for  transportation,  introduced  by  the 
railway,  have  likewise  substantially  added  to  the 
world's  mineral  products.  In  parts  of  this  country 
where  the  railway  has  not  yet  penetrated,  it  does 
not  pay  to  open  mines  of  silver-bearing  ore  yielding 
less  than  sixty  dollars  to  the  ton.  The  moment 
that  a  railway  is  opened  to  the  point,  bringing  fuel 
thither  and  taking  away  either  ore  or  base  metal, 
the  mine  that  was  valueless  before  becomes  a  valu- 
able property  if  it  yields  forty  or  even  twenty  dol- 
lars per  ton,  and  thus  its  treasury  is  added  to  the 
world's  wealth. 

The  rapidity  of  transportation  has  another 
effect.  It  diminishes  the  risk  of  capital,  and 
increases  its  fertility,  by  securing  a  speedy  return 
for  money  invested ;  and  inasmuch  as  the  return  of 
the  capital  comes  back  more  speedily,  it  lessens 
the  rates  of  profits,  thereby  securing  lower  prices 
to  the  consumer.  The  effect  which  the  production 
of  our  Kansas,  Nebraska,  and  Dakota  wheat-fields 
has  had  upon  the  English  farmers  is  a  result,  only 
on  a  wider  field,  analogous  to  that  which  has  been 
had  on  the  narrower  field  of  Von  Thiinen's  concen- 
tric lines. 

The  influence  of  the  railway  upon  manufacturing 
industries  has  been  almost  as  great  as  it  has  been 
upon  agriculture.  In  ante-railway  days  the  fur- 
nace and  the  smelting  works  were  of  necessity 


Increased  Production  2^ 

compelled  to  be  close  to  the  ore.  It  may  now  be 
situated  close  to  where  the  capital,  which  con- 
tributes to  establishing  the  works,  is  located. 
Although  such  industries  suffer  somewhat  from 
the  higher  price  of  labor  incident  to  the  denser 
centres  of  population,  yet  the  better  supervision 
and  more  intelligent  workmanship  that  is  contri- 
buted to  the  manufacturing  process  by  reason  of 
the  capitalist  being  able  personally  to  superintend 
the  operations  of  his  factory,  and  thus  reduce 
waste,  enable  such  works  by  the  securing  of  a 
larger  application  of  capital  to  find  compensation, 
and  even  profit,  notwithstanding  their  distance 
from  the  mine. 

We  therefore  find  the  great  manufacturing  in- 
dustries, though  being  at  some  distance  from  the 
actual  output  of  raw  material,  gradually  establish- 
ing themselves  in  the  large  cities,  which  are  the 
centres  of  capital.  Denver,  in  Colorado,  is 
rapidly  becoming  the  centre  of  the  smelting  opera- 
tions of  the  State,  for  ores  bearing  precious  metals. 
St.  Louis  is  an  important  ore-reducing  point,  and 
successful  reductions  of  precious  ore  are  carried  on 
in  Philadelphia  and  in  the  city  of  New  York, 
thousands  of  miles  away  from  where  the  raw 
material  is  obtained.  Equally  true  as  to  textile 
fabrics  is  this  condition  of  things.  Whether  in  the 
shape  of  wool  coming  from  the  Cape  of  Good  Hope, 
cotton  from  India,  South  America,  or  from  our  own 
cotton  States,  hemp  from  the  Far  West  or  from 
Hungary,  the  raw  products  are  all  used  up  at  the 


28      Railways  in  the  United  States 

same  manufacturing  establishment,  at  Manchester 
or  at  Paisley,  at  Cohoes  or  at  Lowell,  and  but  for 
the  tariff  the  cost  of  distribution  of  the  raw  mater- 
ial would  form  but  a  small  item  compared  with  the 
advantages  obtained  from  water-power,  proximity 
to  ships  and  to  coal,  and,  more  especially,  facilities 
for  the  obtaining  and  the  supervision  of  the  capital 
employed.  By  delocalizing  the  working  up  of  the 
raw  material  into  its  finished  product,  and  giving 
to  capital  the  advantage  of  immediate  personal 
supervision,  a  tendency  has  been  produced  which 
has  been  a  puzzle  to  many  economists — the 
centralization  of  industrial  employment,  and  the 
driving  of  the  smaller  handicraftsmen  from  siiccess- 
ful  competition  by  compelling  them  to  become  a 
part  of  vast  industrial  establishments.  The  con- 
trolling of  millions  of  dollars  of  capital  gives  to  such 
capital  great  advantage  over  the  individual  more 
favorably  located  as  to  territory,  but  less  favorably 
located  in  the  employment  of  the  more  expensive 
labor-saving  machinery,  and  facilities  for  carrying 
on  large  enterprises  at  the  lowest  possible  rates  of 
interest. 

The  result  of  this  tendency  is  not  an  unmixed 
good.  It  causes  cities  to  become  overcrowded;  it 
takes  away  the  independence  of  the  individual 
working  man;  it  makes  the  handicraftsman  part 
of  a  huge  machine,  and  compels  the  workman  to 
give  his  time  more  and  more  to  smaller  and 
smaller  parts  of  the  whole  operation  necessary  to 
produce  a  given  result.     The  smith  of  the  Middle 


Advantages  2^ 

Ages  would  produce  an  armor,  and  would  even 
ornament  it  with  devices.  He  would  also  shoe 
horses.  To  work  in  iron  and  steel  in  all  its  depart- 
ments was  his  occupation,  and  he  was  probably  a 
larger  man  in  his  development  than  the  smith  of 
to-day.  But  society  is  called  upon  to  pay  a  penalty 
for  the  enormous  counter-advantages  of  the  divi- 
sion of  employments  in  the  decreased  development 
of  the  workman.  The  division  of  employments,  of 
course,  increases  considerably  the  output  of  each 
working  man,  and  as  the  sum  total  of  output  is  thus 
enormously  increased,  the  sum  total  of  exchange- 
able products  is  enormously  increased.  A  given 
amount  of  labor  will,  at  the  present  period  produce 
to  the  smith  of  to-day  an  exchange  of  products 
many  times  greater  than  could  be  obtained  by 
the  smith  in  the  Middle  Ages,  notwithstanding 
the  superior  general  skill  and  workmanship  of 
the  latter. 

ADVANTAGES  OF  RAILWAYS 

Friedrich  List,  in  urging  upon  Germany  in 
1 84 1,  the  necessity  for  developing  the  railway 
system  sums  up  in  the  following  order  the  ad- 
vantages to  be  derived  from  its  development. 
I.  As  a  means  of  national  defence,  it  facili- 
tates the  concentration,  distribution,  and  direction 
of  the  army.  2.  It  is  a  means  to  the  im- 
provement of  the  culture  of  the  nation,  as  it 
facilitates  the  distribution  and  promotes  the  ra- 


30      Railways  in  the  United  States 

pidity  of  distribution  of  all  literary  products, 
and  the  results  of  the  arts  and  sciences.  It  brings 
talent,  knowledge,  and  skill  of  every  kind  readily  to 
market,  and  increases  the  means  of  education  and 
instruction  of  each  individual  and  of  each  class  and 
age.  3.  It  secures  the  community  against  dearth 
and  famine,  and  against  excessive  fluctuation  in 
the  prices  of  the  necessaries  of  life.  4.  It  pro- 
motes the  hygienic  condition  of  the  community, 
as  it  destroys  distances  between  the  sufferer  and 
his  means  of  cure.  5.  It  promotes  social  inter- 
course, and  brings  friend  to  friend,  and  relative  to 
relative.  6.  It  promotes  the  spirit  of  the  nation, 
as  it  has  a  tendency  to  destroy  the  Philistine  spirit 
arising  from  isolation  and  provincial  prejudice  and 
vanity.  It  binds  nations  by  ligaments,  and  pro- 
motes an  interchange  of  food  and  of  commodities, 
thus  making  it  feel  to  be  a  unit.  The  iron  rails 
become  a  nerve  system,  which,  on  the  one  hand, 
strengthens  public  opinion,  and,  on  the  other 
hand,  strengthens  the  power  of  the  state  for*  police 
and  governmental  purposes. 

SPECULATION  PROMOTED  BY  RAILWAY  BUILDING 

One  of  the  first  pathological  symptoms  that  this 
great,  beneficent  growth  has  produced  was  the 
speculative  spirit  that  it  promoted  and  fed.  The 
era  of  speculation,  however,  does  not  begin  with 
the  development  of  the  railway.  Great  specula- 
tive manias,   destructive  in  their  consequences, 


Speculation  31 

and  of  as  far-reaching  and  disastrous  results,  form 
part  of  the  history  of  trade  and  commerce  of  the 
past  two  hundred  years.  The  Mississippi  bubble, 
under  Law,  the  tulip  mania  in  Amsterdam,  and  the 
South  Sea  bubble  in  England,  were  eras  of  as  wild 
speculation  as  the  railway  mania  in  England,  and 
were  much  more  disastrous  in  their  consequences. 
When  the  shares  of  Law's  bank  dechned,  and  the 
South  Sea  bubble  burst,  all  money  values  repre- 
sented in  those  elements  of  speculation  were 
destroyed  beyond  repair.  Wild  as  was  the  rail- 
way speculation  of  1844  and  1845  in  England,  and 
culminating  as  it  did  in  a  great  financial  crisis  in 
the  winter  of  1845  and  1846,  the  railway,  the 
subject-matter  of  the  speculation,  still  remained; 
and  although  shares  were  frightfully  depressed 
during  the  crisis,  they  ultimately  rose  to  some- 
thing approaching  their  true  value,  the  excessive 
premiums  paid  by  individuals  being  all  that  was 
wasted.  Every  country  which  has  allowed  the 
railway  to  be  built  by  private  enterprise  has  had 
its  share  of  speculative  ventures  and  speculative 
prices.  Railway  building  has  certainly  fostered  a 
class  of  unscrupulous  operators  as  well  as  tricky 
and  reckless  railway  officials,  who  found  larger 
profits  in  the  share  market,  and  more  rapid  means 
of  achieving  great  fortunes,  than  in  finding  capital 
for  railway  construction,  or  honestly  and  efficiently 
administering  the  railway  properties  and  trusts  in 
their  hands.  Absence  of  governmental  super- 
vision as  to  stock  capital  of  railways  has  caused 


32      Railways  in  the  United  States 

the  placing  on  the  money  markets  of  the  world  of  a 
vast  quantity  of  fictitious  values,  not  representing 
actual  construction  in  money  value,  but  possible 
value  to  result  from  the  development  of  traffic  and 
anticipated  dividends.  [The  governmental  super- 
vision since  introduced  has  restricted  this  tendency 
considerably.] 

In  many  instances  the  seemingly  excessive 
profits  made  in  the  United  States  by  railway 
building  were  but  a  fair  and  natural  return  for 
the  great  risks  incurred.  In  the  event  of  success, 
the  men  who  had  the  foresight  and  boldness  to 
invest  their  capital  in  building  lines  like  the 
Transcontinental  Pacific  through  the  territory  of 
hostile  tribes  of  Indians,  across  plains  and  over 
deserts,  at  the  risk  of  life  and  fortune,  deserved 
considerable  remuneration  for  their  boldness  and 
their  enterprise.  Differences  of  opinion  may  hon- 
estly be  entertained  whether  they  have  not  been 
overpaid,  and  whether  the  methods  adopted 
through  the  instrumentality  of  political  chicanery 
were  in  the  least  justifiable.  These  matters  apart, 
however,  it  must  be  conceded  that,  but  for  the 
inducement  held  out  of  very  large  profits  through 
the  instrumentality  of  fictitious  capitalization  and 
subsidies  of  land  or  money,  many  of  the  newer 
territories  of  the  United  States  would  have  been 
unsupplied  by  railways. 

FICTITIOUS  CAPITALIZATION 

What  is  here  said  is  not  meant  to  be  a  justifica- 


Fictitious  Valuations  33 

tion  for  fictitious  capitalization,  which  is  an  evil 
of  such  great  and  wide-bearing  consequence  that 
it  were  better  if  railway  building  were  somewhat 
delayed  than  to  allow  it  to  come  into  existence  un- 
der such  conditions.    The  writer  desires  simply  to 
draw  attention  to  the  fact,  that  the  absence  of  gov- 
ernmental supervision  over  capitalization  leaves 
individuals  or  corporations  free  to  devise  whatever 
scheme  they  may  think  best  to  enhance  profits  in 
conducting  doubtful  enterprises,  and  results  inevi- 
tably in  railway  management  regarding  no  interest 
except  that  of  the  promoters  and  capitalists  who 
respectively   lay   out   the   scheme   and   find   the 
money,  and  in  such  a  case  the  public  will  be  wof ully 
left  out  of  sight.     At  the  very  outset  of  railway 
development,  Stephenson,  who  was,  from  all  we 
can  learn  of  his  career,  as  wise  a  statesman  as  he 
was   an  engineer,   insisted  that  railways  should 
be  taken  in  hand  and  operated  by  the  government, 
claiming  that,  from  its  nature  and  character,  it 
was  a  highway  which  would  in  time  become  more 
important  than  the  ordinary  road,  and  which  also 
possessed  the  peculiarity  that  the  owner  of  the 
road  would,  in  time,  do  the  business  of  transpor- 
tation thereon.     In  terse  language  he  expressed, 
before  a  committee  of  Parliament,  his  opinion  that 
competition  would  not  be  the  means  of  producing 
in  this  case,  as  it  does  in  others,  the  cheapest  and 
best  results  for  the  community,  because,  said  he, 
"where   combination  is  possible,   competition  is 
excluded." 


34      Railways  in  the  United  States 

RAILWAY    DEVELOPMENT    AND    FREEDOM    OF 
MANAGEMENT 

Railway  development  took  its  origin  in  England 
and  in  this  country  contemporaneously  with  the 
growth  of  the  democratic  spirit,  and  with  the 
dissemination  of  politico-economic  ideas.  The 
democratic  spirit  was  jealous  of  governmental 
power,  and  aimed  at  its  reduction  and  decentral- 
ization. The  politico-economic  doctrines  taught, 
as  an  axiomatic  truth,  that  the  government  per- 
formed its  operations  at  greater  expense  than  the 
individual,  and  that  whatever  could  be  left  to 
individual  enterprise  should  be  excluded  from 
the  domain  of  government.  PoUtical  economy  at 
the  same  time  asserted,  as  an  axiomatic  truth,  the 
proposition  that  competition  was  productive  of 
unmixed  good;  that  it  was  universally  applicable; 
that  governmental  regulation  and  interference 
tended  to  diminish  or  destroy  competition;  and 
that  it  would  subserve  the  best  interests  of  man- 
kind if  government  would  let  things  in  commercial 
and  industrial  enterprise  work  out  their  own 
salvation. 

In  England  and  America,  therefore,  railways 
were  placed  in  the  hands  of  corporations,  which 
had  power,  on  paying  its  value,  to  condemn  prop- 
erty. In  England,  maximum  rates  of  charges  were 
in  every  case  prescribed  by  the  charter  constituting 
the  corporation,  but  these  maximum  charges  were 
generally  made  so  high  that  they  practically  did 


Early  Mistakes  35 

not  interfere  with  the  railway  corporations;  within 
the  Hmitation  of  these  maximum  charges  the  rail- 
ways were  free  to  make  such  discriminations  or 
modifications  as  they  deemed  necessary  to  meet 
particular  exigencies.  For  every  addition  to  its 
public  powers  and  for  every  extension  of  its  line, 
the  railway  was  compelled  to  go  to  Parliament  for 
powers.  The  opposition  of  the  landowner  and 
canal  proprietor  once  overcome,  however,  the 
great  benefits  conferred  from  the  very  outset  by 
the  establishment  of  railway  communication  be- 
came so  apparent  that  Parliament  was  but  too 
willing  to  grant  additional  powers  without  inquir- 
ing very  closely  as  to  what  use  would  be  made  of 
them. 

EARLY  MISTAKES  OF  LEGISLATION 

Both  in  England  and  America  the  legislatures 
of  the  period  from  1825  to  1835  made  the  mistake 
of  supposing  that  the  railway  bore  an  analogy  to 
the  canal,  and  traces  of  this  mistake  appear  in 
almost  all  of  the  early  charters.  It  was  supposed 
that,  like  the  canal,  the  railway  would  be  built  by 
one  class  of  capitalists,  but  that  also,  in  the  same 
manner  as  over  the  canals,  the  traffic  over  the 
railway  would  be  carried  on  by  another  class  of 
individuals  or  corporations,  of  forwarders  and 
common  carriers,  who,  under  regulations  and 
charges  for  toll  established  by  the  railroad  com- 
pany, would  do  the  transportation  business  over 


36      Railways  in  the  United  States 

the  line.  It  was  supposed  that  the  railway  was 
merely  an  improved  highway,  the  carriages  of 
which  woiild  nm  within  certain  grooves  from 
which  they  could  not  depart,  and  that  in  all  other 
respects  the  railway  corporations  would  be  one 
function  and  the  business  of  transportation  over  it 
would  be  in  the  hands  of  others.  Thus,  the  char- 
ter of  the  Ithaca  &  Owego  Railroad  contains  the 
following  language:  "Sec.  12.  All  persons  pay- 
ing the  toll  aforesaid  may,  with  suitable  and  proper 
carriages,  use  and  travel  upon  the  said  railroad, 
subject  to  such  rules  and  regulations  as  the  said 
corporators  are  authorized  to  make  by  the  9th 
section  of  this  act.  "—(Laws  of  N.  Y.,  1827,  p.  17.) 

USELESSNESS    OF    FIXING    MAXIMUM    RATES 
FORESEEN 

Certain  members  of  Parliament  foresaw  that, 
as  a  means  of  protection  of  the  public,  the  limita- 
tion upon  excessive  profits  imposed  in  these  imder- 
takings  by  fixing  a  maximum  rate  of  charges  was 
insufficient.  Pre-eminent  among  those  members 
of  Parliament  was  Mr.  James  Morrison,  who,  in  a 
speech  delivered  in  the  House  of  Commons  May 
17,  1836,  said: 

"The  limitation  of  the  rates  of  charge  is,  in 
a  progressive  country,  good  for  little  or  nothing. 
The  increase  of  population  and  trade  has  been  so 
very  great  that  a  toll  that  would  have  yielded  an 
ample  profit  on  a  railway  constructed  a  dozen  or 


Maximum  Rates  2>1 

twenty  years  ago,  might  now  perhaps  yield  an 
equal  amount  of  profit  were  the  rates  reduced  a 
half.  Nothing  in  fact  can  be  more  improvident 
or  more  absurd  than  that  Parliament  should  once 
for  all  fix  the  rate  of  toll  when  an  undertaking  is 
entered  upon,  and  divest  itself,  unless  by  violating 
the  right  of  property,  of  the  power  to  reduce  that 
rate  in  all  time  to  come,  how  greatly  soever  it  may 
exceed  what  would  be  a  liberal  return  for  the  capi- 
tal invested  in  the  undertaking.  I  need  not  add 
that  it  is  of  the  greatest  importance  to  the  interests 
of  the  public  that  the  cost  of  internal  communica- 
tion should  be  reduced  as  low  as  possible.  The 
limitation  of  the  dividend  is  a  practice  found  to  be 
as  ineffectual  as  the  fixing  a  maximum  on  the  rate 
of  charge.  The  public  has  no  check  on  the  system 
of  management,  nor  can  it  explore  the  thousand 
channels  in  which  profits  may  be  distributed, 
under  other  names,  among  the  subscribers,  nor 
has  it  any  means  of  preventing  the  wanton  and 
extravagant  outlay  of  money  on  the  works,  etc. 
To  make  the  provision  for  limiting  the  dividends 
good  for  anything,  it  would  be  necessary  that  all 
the  proceedings  of  a  company  so  limited  should  be 
controlled  by  commissioners  appointed  by  the 
government." 

He  therefore  insisted  that  in  every  case  a  clause 
should  be  inserted  in  parliamentary  concessions  to 
railway  corporations,  by  which  Parliament  reserves 
to  itself  the  right  to  revise  the  rates  of  toll  every 
decade,  or  oftener.     Mr.  Morrison  also  deprecated 


38      Railways  in  the  United  States 

the  idea  that  competition  would  prevent  excessive 
charges,  and  even  at  that  early  day  he  foresaw 
that  a  vast  amount  of  capital  would  be  expended 
unnecessarily  in  making  duplicate  lines,  whereby 
the  public  would  not  be  benefited  by  the  securing 
of  lower  rates  of  charges,  but  the  existing  traffic 
would  be  divided  in  combination  by  the  new  lines 
and  the  prior  existing  lines,  even  though  the  road- 
bed of  the  latter  was  by  no  means  taxed  to  its  maxi- 
mum capacity  in  caring  for  the  traffic  on  the  line. 
He  urged  upon  Parliament  the  necessity  of  pre- 
venting such  a  waste  of  capital,  claiming  that  by  a 
reckless  chartering  of  new  lines  competition  was 
not  secured,  and  that  the  new  lines  when  built 
would  by  combination  with  existing  lines  prevent 
the  public  from  securing  the  benefits  to  be  derived 
from  the  chartering  of  the  new  lines. 

In  a  speech  delivered  in  1845,  nine  years  later, 
Mr.  Morrison,  after  showing  the  gradual  reduction 
in  the  cost  of  and  charge  for  transportation,  and 
the  enormous  benefits  which  the  railway  system 
had  conferred  upon  England,  as  well  as  the  great 
social  changes  which  were  taking  place  in  conse- 
quence of  the  existence  of  the  railway  system, 
continued : 

"These  various  circumstances  prove  that  the 
question  now  is  no  longer  one  of  private  considera- 
tion, but  one  of  great  public  policy,  a  matter  not 
to  be  left  to  the  control  of  inferior  boards  or 
private  companies,  but  one  which  ought  to  be 
subject  to  the  interference  of  Parliament,  and 


Maximum  Rates  39 

guided  by  the  wisdom  of  the  government.  A 
great  social  change  is  in  the  act  of  taking  place, 
and  it  is  to  this  great  subject  that  I  invite  the 
attention  of  the  house,  of  the  government,  and 
more  particularly  of  the  right  honorable  baronet 
(Sir  Robert  Peel)  at  the  head  of  the  administra- 
tion, and  I  entreat  him  to  look  at  this  question  as 
one  great  whole,  and  not  to  regard  it  in  detached, 
isolated  details  and  fragments.  If  he  will  view  it 
in  all  its  many  and  important  ramifications,  if  he 
will  estimate  the  combined  effects  of  all  sorts  that 
are  certain  to  follow  from  this  extraordinary  com- 
bination of  influences,  he  will,  I  think,  agree  with 
me  in  believing  the  subject  to  be  one  of  the  greatest 
moment,  one  fraught  with  unspeakable  benefits  if 
properly  directed,  but,  if  neglected  or  mismanaged, 
threatening  us  with  evils  of  portentous  magni- 
tude." 

He  then  entered  upon  the  question  of  tolls.   He 

said : 

"I  may  here  be  asked  the  principle  upon  which 
I  would  regard  the  rates  of  toll.  My  answer  is, 
that  I  would  determine  the  rate  of  toll  in  every 
case  by  the  sum  at  which  the  particular  line  of 
railway  could  now  be  constructed.  The  public 
are  not  bound  to  inquire  what  the  line  really  has 
cost,  but  merely  to  ascertain  the  sum  for  which  it 
could  at  the  present  time  be  constructed,  and  the 
railway  proprietors  ought  to  be  compelled  to 
carry  the  public  and  their  goods  for  such  fare  as 
would  yield  a  fair  profit  upon  such  outlay." 


40      Railways  in  the  United  States 

"So  little,  indeed,"  he  concludes,  "was  the 
subject  of  railways  understood  in  its  commence- 
ment that  the  original  rates  were  fixed  upon  the 
supposition  that  the  railway  proprietor  would  be 
the  proprietor  of  the  road  only,  and  that  the  per- 
sons using  it  would  pay  merely  for  the  means  of 
transit,  as  upon  the  canals.  It  is  well  known  that 
such  has  not  been  the  case.  Railway  proprietors 
are  almost  universally  not  only  the  owners  of  the 
line,  but  the  carriers  upon  it.  Still,  strange  as  it 
will  seem,  the  legislatures  have  continued,  in  every 
railway  bill  down  to  the  last  bill  of  the  last  session, 
to  repeat  these  lists  of  tolls,  although  in  no  single 
instance,  I  believe,  has  it  been  found  practicable 
to  carry  them  into  effect.  These  rates  of  tolls  are 
practically  a  mere  delusion.  In  truth,  Parlia- 
ment might  just  as  well  have  ordered  the  several 
companies  to  exhibit  in  their  stations  a  set  of  old 
sheet  almanacs.  They  were  a  mere  useless  in- 
cumbrance." 

These  were  the  utterances  of  a  member  of 
Parliament  of  extraordinary  intelligence,  of  a  man 
who  had  worked  his  way  up  from  a  clerkship  to 
the  position  of  being  the  richest  merchant  in 
England,  where  he  occupied  a  position  somewhat 
akin  to  that  held  at  a  subsequent  day  by  A.  T. 
Stewart  in  the  United  States.  To  him  England, 
and  indeed  the  commercial  world,  owes  the  system 
of  charging  in  retail  transactions  one  uniform  and 
undeviating  price,  without  cheapening  or  bargain, 
a  system  which  has  since  his  time  been  adopted  as 


Early  Charters  41 

the  sound  commercial  rule  in  England,  in  America, 
and  in  the  leading  cities  of  France  and  of  Germany. 

EARLY    UNITED    STATES    RAILWAY    CHARTERS 

In  this  country,  a  few  of  the  early  charters, 
copied  somewhat  from  the  EngHsh  parliamentary 
acts,  contained  maximum  rates  of  toll  in  a  schedule 
of  rates.  In  some  of  these  early  charters  the 
state  reserved  the  right  to  purchase  within  twenty 
years  the  railway  thereby  authorized  to  be  con- 
structed. No  general  act  then  existed  indiscrim- 
inately granting  the  right  of  way  and  the  right  to 
condemn  property  to  any  persons  who  saw  fit  to 
organize  a  railway  corporation,  but  in  every 
instance  an  application  had  to  be  made  to  the 
respective  legislatures  for  the  various  powers  to  be 
exercised  by  the  corporation.  Some  little  safe- 
guard was  therefore  left  in  the  hands  of  govern- 
ment against  too  great  an  abuse  of  public  power. 

In  1846,  owing  to  the  spread  of  the  politico- 
economic  doctrines  before  referred  to,  and  to  the 
corruption  incident  to  the  railway  lobby  in  the 
legislative  halls,  the  new  constitution  of  the  State 
of  New  York  required  its  legislature  to  pass 
general  laws  under  which  corporations  may  be 
formed  (Art.  VIII.,  §  i),  and,  acting  in  the  spirit  of 
this  requirement,  the  legislature  of  1848  passed  a 
general  railroad  act,  substantially  like  the  one 
re -enacted  in  1850,  except  that  the  legislature,  by 
the  act  of  1848,  reserved,  in  each  particular  case, 


42      Railways  in  the  United  States 

the  power  to  grant  by  special  act  the  right  of 
eminent  domain,  and  to  give  to  corporations  about 
to  build  and  operate  railways  a  means  only,  under 
the  general  law,  of  organization  and  of  power. 
In  1850  that  safeguard  wcs  surrendered  by  the 
passage  of  a  general  railway  act  omitting  such 
reservation.  Thereafter  twenty -five  persons  could, 
by  the  mere  filing  of  articles  of  incorporation  in 
the  office  of  the  Secretary  of  State,  become  a  rail- 
way corporation,  endowed  with  power  to  take 
property  in  invitum,  and  to  run  lines  wherever 
and  in  whatever  form  they  saw  fit,  subject  only  to 
certain  restrictions  as  to  rights  in  cities,  and  to 
condemn  property  for  such  purposes.  This  placed 
railway  corporations  upon  the  footing  of  any  pri- 
vate enterprise  in  the  hands  of  corporate  manage- 
ment, and,  except  as  to  passenger  traffic,  was  a 
complete  surrender  of  every  attempt  on  the  part 
of  the  government  to  supervise,  regulate,  or  con- 
trol the  railway  corporations  of  the  State,  or  to 
subject  them  to  any  conditions  securing,  without 
discrimination  and  injustice,  fair  and  proper  rates 
to  the  public.  This  general  railway  law  did  away 
with  the  railway  lobby ;  and  the  immediate  benefits 
in  the  way  of  extensions  of  the  railway  systems, 
and  the  freedom  from  public  corruption  resulting 
from  this  railroad  law,  caused  other  States  to  fol- 
low in  the  wake  of  the  State  of  New  York,  and 
State  after  State  passed  general  railway  acts  in 
imitation  or  modification  of  the  one  enacted  by 
the  State  of  New  York  in  1850.     This  introduced 


European  Railways  43 

the  era  of  what  was  supposed  to  be  competition, 
with  results  which  we  shall  presently  examine  in 
detail. 

RAILWAY  CONSTRUCTION  AND  CONTROL  IN  EUROPE 

Now  let  us  look  at  the  course  that  the  railway- 
question  took  in  other  countries. 

Belgium.  In  Belgium  all  concessions  for  con- 
structing railways  are  granted  by  the  Minister  of 
the  Interior,  subject  to  the  ratification  of  the 
Chamber  of  Deputies  and  of  the  King.  The  expect- 
ant corporators  deposit  a  plan,  giving  the  line  of 
the  route,  estimates  of  its  revenue,  and  the 
probable  expense  of  the  undertaking,  together  with 
a  tariff  of  tolls  for  passengers  and  freight  traffic, 
at  which  they  propose  to  carry.  The  project  is 
then  submitted  to  the  Department  of  Roads  and 
Bridges,  or  to  a  special  commission  of  engineers  for 
report.  All  inquiries  to  verify  the  calculations 
and  the  statements  of  the  projectors  are  made  at 
the  expense  of  those  who  deposit  the  plan,  and  for 
that  purpose  they  are  required  from  time  to  time 
to  pay  in  to  the  ministry  such  sums  as  they  may  be 
called  upon  to  contribute.  Then  for  a  period  of 
from  one  to  three  months  the  whole  plan  is  adver- 
tised in  the  locality  to  be  affected  by  it.  The  local 
councils  of  the  municipalities  through  which  the 
road  is  proposed  to  be  laid  consider  the  project, 
and  report  to  the  ministry.     After  these  reports 


44       Railways  in  the  United  States 

have  been  presented,  a  hearing  is  had,  either  before 
the  commission  on  bridges  and  roads,  or  before  the 
minister  himself,  at  which  the  engineering  work, 
the  guarantees  for  its  execution,  the  objections  to 
its  being  imdertaken,  etc.,  are  discussed,  and  the 
manner  in  which  the  government  is  to  exercise 
surveillance  over  it  is  fixed.  The  rate  of  charges 
by  the  company,  the  time  for  which  they  may  be 
demanded,  and  the  time  within  which  the  work  is 
to  be  commenced  and  finished,  are  also  specified. 
After  all  these  questions  have  been  settled,  the 
whole  matter  is  then  submitted  to  the  Chamber 
and  Senate  and  the  King,  either  of  whom  can  alter 
it  before  it  passes  as  a  law. 

In  Belgium,  the  government  itself,  however, 
built  the  principal  lines,  or  bought  them  up,  and 
it  now  in  theory  allows  private  companies  only  to 
build  extensions  and  developments  of  the  main 
lines.  In  1850,  of  the  lines  of  railway  in  Belgium, 
64  per  cent,  of  the  whole  were  owned  by  the 
government,  and  36  per  cent,  by  private  individ- 
uals. After  the  construction  of  its  main  lines, 
however,  the  Belgium  Government  retired  from 
the  work  of  constructing  new  lines,  and  in  conse- 
quence there  was,  in  i860,  61  per  cent,  of  the 
mileage  in  Belgium  in  the  hands  of  private  indi- 
viduals, and  only  33  per  cent,  in  the  hands  of  the 
state.  By  amalgamation,  however,  these  small 
feeders  in  the  hands  of  private  individuals  in 
process  of  time  have  developed  into  trunk  lines, 
competing  with  the  government  lines  on  their  own 


European  Railways  45 

field.  [The  Statesman's  Year  Book  for  19 10  gives 
the  mileage  of  lines  worked  by  the  state  at  the  end 
of  1907  as  2530  miles  and  by  private  companies 
330  miles.] 

The  Grand  Central  Beige,  a  private  company, 
was  formed  out  of  seven  companies,  and  the  Societe 
Generate  d' Exploitation,  another  private  line,  was 
formed  out  of  nineteen  companies.  So  long  as  the 
government  owns,  controls,  and  w^orks  its  main 
lines  of  railway,  and  keeps  down  the  interest  upon 
the  outlay  to  7  per  cent.,  no  dangerous  combina- 
tion, however,  is  to  be  feared.  It  may  at  any  time, 
if  any  line  becomes  very  profitable,  buy  it  up,  as, 
imder  the  terms  of  every  concession,  a  railway 
line  in  Belgium  is  subject  to  purchase  by  the  state 
for  the  benefit  of  the  commonwealth.  The  pur- 
chase price  is  the  net  receipts  of  the  last  seven 
preceding  years  of  the  company's  working,  from 
which  the  receipts  of  two  most  profitable  years 
are  deducted,  and  an  annuity,  equivalent  to  the 
average  dividend  of  the  five  remaining  years, 
with  the  addition  of  15  per  cent.,  is  paid  for  the 
road. 

One  of  the  peculiarities  of  the  Belgian  system  is 
that  the  government  guarantees  to  the  line  it  allows 
to  be  built  interest  at  the  rate  of  4  per  cent,  on  its 
actual  outlay;  it  thus  has  full  justification  for 
supervising  the  construction  of  the  railway,  and 
insisting  upon  the  fullest  possible  reports,  pre- 
scribing the  method  of  its  book-keeping,  desig- 
nating some  of  its  officers,  and  generally  regarding 


46       Railways  in  the  United  States 

the  railway  corporation  as  wards  of  the  state. 
This  method  of  guarantee  also  prevents  the  under- 
taking of  lines  which  do  not  promise  to  be  fairly 
remunerative  from  the  start.  The  rates  of  charge 
of  both  the  passenger  and  freight  traffic  of  all  the 
railways  of  Belgium  are  fixed  in  the  concessions 
themselves,  which  are  limited  to  ninety  years. 
The  rates  are,  of  course,  maximum  rates,  the 
companies  being  at  liberty  to  reduce  their  rates  to 
any  point  below  the  figures  set  forth  in  the  law. 
But  when  the  state  has  guaranteed  the  4  per  cent, 
of  the  capital,  the  consent  of  the  Minister  of 
Public  Works  is,  however,  necessary,  before  the 
tariff  is  permitted  to  be  lowered.  A  very  active 
competition  was  carried  on  in  past  years  between 
the  railways  owned  by  the  state,  and  the  rail- 
ways owned  by  individuals,  wherever  the  lines 
touched  the  same  points.  This  competition  has 
resulted  in  the  corporate  railways  being  permitted 
to  make  special  contracts  in  the  same  manner  as 
the  state  railways  did  down  to  about  1864,  when 
a  law  was  passed  forbidding  the  making  of  special 
contracts;  and  compelling  both  the  state  railways 
and  the  individual  railways  to  carry  all  their 
freight  at  schedule  rates. 

By  this  system  of  state  guarantee  of  invest- 
ment, the  state  is  prevented  from  carrying  its 
competition  with  the  private  lines  beyond  a  cer- 
tain point.  The  fact  that  the  private  companies 
must  be  permitted  to  earn  a  net  revenue  of  4  per 
cent,  upon  the  capital  invested  therein,  or  the 


European  Railways  47 

state  must  make  good  the  deficiency,  serves  as  a 
check  upon  the  competition  of  the  state. 

This  system  resulted  in  giving  to  Belgium  the 
best,  and  in  every  way  the  most  efficient,  network 
of  railway  service  on  the  face  of  the  globe.  It  had 
low  rates  of  passenger  traffic,  and  low  and  certain 
rates  of  freight  traffic.  The  private  companies 
were  earning  good  dividends  upon  their  capital. 
The  state,  on  the  one  hand,  prevented  the  private 
companies  from  becoming  a  dangerous  monopoly ; 
and,  on  the  other  hand,  the  constant  competition 
with  private  enterprise  compelled  the  state  to 
manage  its  own  property  with  frugality  and  intel- 
ligence, to  be  able  to  sustain  the  competition  with 
private  enterprise.  The  state  reserves  to  itself 
the  regulation  at  all  times  of  the  number  of  trains 
to  be  run  upon  the  private  roads ;  their  connections 
with  other  railways,  and  the  amount  of  the 
terminal  charges,  are  likewise  under  state  control. 
Before  any  contract  between  two  different  com- 
panies can  be  acted  upon  finally  by  the  companies 
themselves,  it  must  be  submitted  to  the  Depart- 
ment of  Public  Works  and  the  Department  of 
Roads  and  Bridges,  and  receive  their  approval. 

In  every  concession,  clauses  are  introduced, 
requiring  the  companies  to  take  the  cars  of  other 
companies  at  certain  rates,  and  to  furnish  the 
motive  power  for  them  to  some  point  upon  their 
own  line,  and  the  state  can  interfere  authoritatively 
in  the  event  of  any  company  refusing  to  comply 
with  these  conditions. 


48      Railways  in  the  United  States 

Besides  the  competition  of  the  governmental 
railways,    the   private   railways   of   Belgium   are 
subjected  to  the  active  and  constant  competition 
of  the  numerous  canals,  which  form  quite  a  net- 
work of  waterways  throughout  that  little  kingdom. 
From  1850  to  i860,  the  tendency  in  Belgium  was 
toward  private  ownership ;  since  i860,  the  tendency 
has  been  toward  governmental  ownership,   and 
this  so  strongly  that  probably  in  a  few  more  years 
the  government  will  be  the  owner  of  substantially 
all  the  main  lines  of  rail.     [At  the  end  of  Decem- 
ber, 1907,  only  330  miles  were,  as  alread}^  stated, 
owned  by  private  companies  out  of  2860  miles.] 
In  1870,  about  400  miles  of  railway  were  bought 
by  the  government,  and  since  that  time,  about 
600  miles  more  have  been  purchased.     Competi- 
tion, however,  can  scarcely  be  said  now  to  exist  in 
a  country  where  the  conditions  of  the  competition 
are  fixed  by  so  powerful  a  corporation  as  the  state 
has  become,  and  the  private  owner  is  helplessly 
impotent,  and  has  no  alternative  but  to  sell  out. 
Yet  the  public  in  Belgium  is  well  and  satisfactorily 
served  by  its  railway  system,  and  none  of  the  dis- 
graceful conditions  of  our  own  railway  system  are 
known   there.     The   overpowering   force   of   the 
competition  of  the  state,  of  course,  causes  consid- 
erable criticism  and  dissatisfaction  on  the  part  of 
the  investors  in  the  shares  of  private  railways,  but 
this  competition  on  the  part  of  the  state  is  not  a 
new  matter,  as  the  projectors  of  the  private  Hnes 
invested  their  moneys  and  built  their  hnes  with  a 


European  Railways  49 

full  knowledge  of  the  competition  to  which  their 
lines  should  be  subjected.  In  1870,  the  net  result 
exhibited  by  the  state  railways  was  a  return  of  6 
per  cent,  upon  the  capital  invested,  being,  on  the 
whole,  as  great  a  net  result  as  any  railway  system 
in  the  world  exhibits. 

France.  To  each  of  the  great  French  lines, 
now  [1880  and  1910]  six  in  nimiber  (originally 
nine),  a  distinct  territory  was  laid  out,  in  which  it 
could  construct  its  trunk  line,  which  was  supposed 
to  be  a  profitable  one;  it  was  then  required  as  a 
condition  for  having  the  district  handed  over  to  it, 
also  as  part  of  the  condition  on  which  it  was  to 
operate  their  main  lines,  to  build  a  number  of 
feeders  and  local  lines,  which  were  supposed,  on 
the  whole,  not  to  be  profitable.  It  was  soon 
found,  however,  that  these  secondary  lines  were  so 
unprofitable  and  burdensome,  that,  if  they  were  to 
be  built  at  all,  without  danger  of  the  abandonment 
of  the  main  lines,  the  state  would  have  to  come  to 
the  aid  of  the  railways.  The  state,  thereupon, 
advanced  large  sums  of  money  to  the  railways,  for 
the  purpose  of  constructing  their  loop  lines,  and 
made  the  concessions  upon  the  condition  that,  at 
the  end  of  ninety  years,  all  the  lines  should  become 
state  property,  and  the  state  was  to  take  the  rolling 
stock  at  a  low  valuation. 

All  the  rates  of  charges,  for  both  passenger  and 
freight  traffic,  are  regulated  with  the  utmost 
minuteness  in  France.  At  any  time  before  the 
4 


50      Railways  in  the  United  States 

ninety  years  expire,  the  government  can  purchase 
the  whole  of  the  road  at  a  capitaHzation  of  an 
average  of  fifteen  years'  income,  after  disregarding 
the  two  worst  years,  and  taking  as  the  minimum 
figure  of  the  capitalization  the  lowest  year  immed- 
iately preceding  the  purchase,  below  which  figure 
it  may  not  be  capitalized.  This  is  done  to  prevent 
the  state  from  resolving  upon  the  purchase  immed- 
iately after  an  exceptionally  good  year.  The 
rates  of  fare  and  of  freight  traffic  are,  of  course, 
mere  maximum  rates,  the  companies  being  per- 
mitted to  go  as  far  below  such  rates  as  they  see  fit. 
Every  tariff  of  charges  must  be  submitted  to  the 
government  for  the  purpose  of  receiving  its 
sanction,  and  a  month's  notice  must  be  given  of 
any  proposed  change. 

France  has  a  perpetual  committee  to  supervise 
its  railways  and  to  arrange  the  tariff  of  charges, 
to  settle  disputes  between  competing  lines  and 
between  the  public  and  the  railways.  This 
committee  is  composed  of  the  following  persons: 
A  president — the  Minister  of  Public  Works;  a 
vice-president,  who  is  the  Director-General  of 
bridges,  roads,  and  railways;  three  experts  ap- 
pointed by  the  Minister  of  War;  three  experts 
appointed  by  the  Minister  of  Finance;  one  ex- 
pert appointed  by  the  Minister  of  the  Interior;  one 
expert  appointed  by  the  Minister  of  Commerce; 
two  inspectors-general  of  bridges  and  roads;  one 
inspector-general  of  mines,  the  Inspector- General 
of  railways,  and  a  secretary.     This  commission 


European  Railways  51 

exercises  both  a  commercial  and  a  technical 
control. 

In  France,  every  company  is  bound  to  receive 
and  carry  forward  all  goods  tendered  to  it,  and  to 
publish,  one  month  in  advance,  the  mileage  rate 
at  which  it  will  carry  them,  and  the  time  within 
which  it  will  deliver  them,  varying  according  to 
the  distance  carried.  No  private  arrangement  of 
any  kind  is  permitted  to  be  made  with  any  organ- 
ization. The  terminal  charges  are  all  prescribed. 
No  one  interested  in  the  stock  of  the  railway,  or 
in  its  direction,  is  permitted  to  make  any  contracts 
with  the  railway  for  supplies,  and  even  every 
passenger  time-table  is  submitted  to  the  govern- 
ment for  approval. 

In  France,  two  tendencies  have  in  recent  years 
striven  for  precedence:  one,  the  extension  of  the 
ownership  by  the  state  of  the  railway  system,  and 
the  hastening  of  the  right  of  the  state  to  purchase, 
in  less  than  ninety  years,  the  rolling  stock  of  the 
railways,  and  to  acquire  the  rights  of  way  of  the 
existing  lines;  the  other,  a  tendency  to  postpone 
the  acquisition  by  the  state  of  the  railway  system 
of  France,  coupled  with  the  attempt,  on  the  part 
of  the  railway  corporations,  to  make  themselves 
intermediately  less  dependent  on  the  state.  M. 
Leon  Say,  a  well-recognized  authority  in  matters 
of  finance  and  political  economy  in  France, 
recently  became  Minister  of  France.  His  relation 
to  the  house  of  Rothschild  is  a  well-known  one, 
and  it  is  also  known  that  the  house  of  Rothschild 


52      Railways  in  the  United  States 

is  the  largest  owner  of  the  share  capital  of  the  most 
important  and  richest  line  of  France,  the  Chemin 
de  fer  du  Nord.  In  his  budgets,  Leon  Say  devoted 
considerable  space  to  the  financial  complications 
which  may  arise  in  consequence  of  the  large 
additional  outlays  that  may  be  required  by  the 
French  Government  to  acquire  the  existing  lines 
of  rail,  and  discouraged  as  much  as  possible 
additional  outlays  by  the  state,  for  the  present, 
either  to  extend  the  system  of  existing  lines  of 
state  rail,  or  to  make  any  further  attempts  to 
acquire  such  transfer  by  anticipating  the  time  for 
the  acquisition  by  the  state  of  the  railways. 
Notwithstanding  his  powerful  influence  and  the 
ability  which  all  France  recognized  in  him  as  pre- 
eminently the  best  qualified  statistician  and  finan- 
cial administrator,  the  French  Chamber  of  Deputies 
refused  to  give  countenance  to  his  suggestions, 
and  he  was  compelled  to  relinquish  power  mainly 
by  reason  of  the  impopularity  of  his  position  on 
the  railway  question. 

The  railways  owe  the  French  Government  about 
600,000,000  francs,  and  the  French  Government  is 
now  in  process  of  investing  additional  sums  of 
money,  not  only  for  the  purpose  of  building  its 
own  lines,  but  to  enable  the  railway  companies  to 
build  lines  of  intercommimication  in  territory 
which  is  admittedly  unprofitable. 

The  ablest  and  strongest  opponent  to  Say's 
project  was  Allain  Targe,  who,  in  concluding  the 
discussion  in  1881,  said: 


European  Railways  53 


<<- 


'You  want  to  temporize  with  the  financial 
power  of  the  great  railways.  Know  you,  gentle- 
men, what  this  power  is?  It  is  the  greatest  which 
now  exists  in  France,  next  to  the  state  and  the 
order  of  Jesuits.  You  are  their  confederates 
(addressing  the  ministry),  and  do  not,  as  you 
should,  stand  in  a  perpetual  condition  of  warfare 
with  it.  You  can  not  deal  with  the  railways  as 
individual  associations  which  are  to  be  regarded 
each  by  itself,  but  you  must  regard  them  from  the 
point  of  view  that  they  have  an  interest  in  com- 
mon, and  that  this  common  interest  is  so  great  as 
to  make  it  a  serious  competitor  to  the  state.  They 
are  indeed  an  imperium  in  imperio.  They  have  a 
combined  debt  of  10,000,000,000  francs,  and 
employ  280,000  officers.  They  stand  in  relation 
with  all  the  trades,  industries,  commerce,  and 
agriculture  of  the  community,  and  in  their  hands 
rests  the  fate  of  all  laborers.  This  enemy  you 
must  fight,  and  the  single  weapon  that  you  have 
in  your  hands  is  the  right  to  acquisition  and  pur- 
chase. Their  first  word  is,  'No  purchase,  no 
acquisition.'  You  must  never  surrender  this 
weapon  if  you  desire  to  hold  power  against  them. " 
The  Chamber,  by  an  overwhelming  majority, 
defeated  Say's  proposition,  and  France  has  again 
determined  that  nothing  shall  interfere  with  the 
ownership  by  the  state  of  the  railways  at  the  time 
originally  fixed  by  the  concession,  and  that  if  pos- 
sible that  time  shall  be  cut  short,  under  the  power 
of  the  French  Government,  by  a  ptuchase  long 


54      Railways  in  the  United  States 

before  the  ninety  years  of  the  original  concession 
shall  expire.  [The  Statesman's  Year  Book  iov  19 lo 
says  that  under  the  laws  of  July  13  and  Decem- 
ber 18,  1908,  the  Western  Railway  system  was 
transferred  to  the  state  on  January  i,  1909.] 

North  Germany.  All  concessions  are  made 
by  the  Minister  of  Commerce,  unless  there  is  to 
be  a  guarantee  of  interest,  or  a  subvention  of 
some  kind,  in  which  event  it  must  pass  through 
the  form  of  a  law.  Since  the  formation  of  the 
German  Empire,  the  separate  states  have  agreed 
to  concede  to  the  Empire  the  power  of  expropri- 
ation, and  the  new  Hnes  are  to  be  constructed 
under  the  Empire.  This  means  under  the  Chan- 
cellor of  the  Empire,  who  thereupon,  through  a 
Reichsgesetz,  may  authorize  the  construction  of 
any  line  involving  the  interest  of  the  state  or  of 
trade. 

Prussia.  At  the  commencement  of  its  system 
of  railways,  Prussia  consciously  renounced,  as  to 
this  service,  all  the  benefits  that  are  supposed  to 
flow  from  competition.  The  laws  of  1838,  section 
forty-four,  enacted  that  no  second  railway  running 
in  the  direction  of  the  first  one,  and  touching  the 
same  principal  points,  should  be  allowed  to  be 
constructed  by  any  promoters  or  corporators 
other  than  the  promoters  and  corporators  of  the 
first  railway,  within  a  period  of  thirty  years  frorn 
the  opening  of  such  railway.    The  state,  for  9,  du^ 


European  Railways  55 

consideration,  by  the  very  same  law,  however, 
reserved  the  right  to  purchase  the  property  of  all 
the  railways  and  appurtenances  organized  under 
that  law,  after  the  lapse  of  thirty  years.  When 
such  authority  was  to  be  exercised,  the  state  was 
to  pay  twenty-five  times  the  amount  of  the  annual 
average  dividend  paid  to  the  shareholders  during 
the  last  five  preceding  years.  It  was  also  to 
pay  the  debts  of  the  company  in  the  same  man- 
ner as  the  company  would  have  paid  them. 

A  number  of  railways  were  built  by  govern- 
mental subvention  in  Prussia,  and  many  of  them 
have  since  that  time  become  by  foreclosure  the 
property  of  the  state.  To  a  great  many  others  large 
loans  were  made  by  the  government,  subjecting 
them  to  such  a  measure  of  governmental  control 
as  practically  to  make  them  state  roads.  As  to 
all  others,  the  state  claims  a  right  of  a  third  part 
of  the  net  revenue  of  the  lines,  beyond  5  per  cent. 

In  1870,  there  were  in  Prussia  3204  miles  of  rail 
which  belonged  to  the  state,  and  3595  miles  of 
rail  which  belonged  to  private  lines.  All  tariffs, 
both  for  freight  and  passenger  traffic,  must  be 
submitted  to  the  government,  and  receive  its 
assent.  These  tariffs  must  be  published,  and  can 
not  afterward  be  raised  without  the  consent  of  the 
Minister  of  Commerce.  At  the  rates  adopted,  the 
companies  are  bound  to  convey,  without  distinc- 
tion of  persons,  all  goods  delivered  for  conveyance, 
the  transport  of  which  is  not  forbidden  by  police 
regulations. 


56      Railways  in  the  United  States 

Since  the  war  with  France,  and  the  consequent 
acquisition  by  the  Empire  of  the  Alsace  and  Lor- 
raine lines  of  rail,  by  successive  enabling  acts,  the 
governmental  acquisition  of  railways  proceeded 
with  great  rapidity,  so  that  each  year  circum- 
scribed the  number  of  private  Hnes,  and  now  there 
are  but  very  few  lines  to  be  acquired  to  make  the 
whole  railway  system  of  Prussia  a  strictly  govern- 
mental institution.  Indeed,  the  railway  directory 
never  fully  survived  the  decree  of  June,  1870,  by 
which  the  Minister  of  Commerce  took  possession 
of  the  railways  for  military  purposes,  and  held 
possession  of  them  diuing  the  war  with  France. 
At  the  close  of  the  war,  the  state  claimed  and 
exercised  the  right  to  supervise  the  expendittu-e  of 
railways  and  to  take  part  in  their  deliberations, 
also  to  determine  the  amount  that  they  are  to 
carry  to  the  sinking  fund,  and  the  amount  they  are 
to  pay  as  dividends.  From  that  time  forth  the 
paternal  and  inquisitorial  power  of  the  govern- 
ment was  so  relentlessly  exercised  against  them 
that  all  power  of  resistance  to  state  absorption 
was  undermined,  and  they  fell  an  easy  prey  to  the 
will  of  the  iron  chancellor,  Bismarck,  who  had 
determined  that  the  lines  should  become  the  prop- 
erty of  the  state.  The  directors  of  the  private 
roads  protested  at  first  against  this  interference, 
claiming  that  under  the  laws  creating  them  they 
were  exempt  from  supervision  of  that  kind.  To 
this  the  Minister  of  Commerce  answered,  that  he 
claimed  the  right  of  the  royal  commission  to  take 


European  Railways  57 

part  at  the  meetings  of  the  boards  of  the  private 
railway  companies,  so  as  to  see  to  it  that  the  object 
of  the  meetings  was  in  the  interest  of  the  pubhc. 
He  said  that  the  railway  administration  could  rest 
assured  that  the  supervision  of  the  state  would 
make  itself  less  and  less  felt  in  proportion  as  the 
railway  administration,  by  a  prompt,  cheap,  and 
safe  service,  gave  evidence  to  the  public  that  they 
rightly  comprehended  and  were  endeavoring  to 
fulfil,  to  the  satisfaction  of  important  public 
interests,  the  trust  placed  for  public  purposes  in 
their  hands.  The  Minister  of  Commerce  closed 
his  answer  with  the  following  significant  admoni- 
tion: 

"I  can  not,  therefore,  but  recommend  that  the 
Prussian  railway  administrations  press  no  further 
the  opinion  of  the  narrow  limits  of  state  super- 
vision over  private  railways,  as  expressed  in  their 
memorial  presented  to  the  Chancellor,  as  it  is  a 
position  which  certainly  is  not  pressed  in  the 
interest  of  the  shareholders.  This  much  is  certain, 
that  for  a  long  time  past  the  commercial  public 
has  demanded  the  restriction  of  the  independent 
power  of  railway  administration,  which  went 
beyond  the  restraints  hitherto  enforced." 

The  rapidity  with  which  the  acquisition  of  the 
private  railways  by  the  Prussian  Government  has 
proceeded  is  indicated  by  the  following  figures: 
At  the  end  of  1879  there  were  3800  miles  of  state 
railways;  2170  miles  of  private  lines  under  state 
control;   and  ,6200  miles  of  private  lines  under 


58      Railways  in  the  United  States 

state  supervision.  At  the  end  of  1881  there  were 
7070  miles  of  state  hnes;  2170  miles  under  state 
management;  and  31 10  miles  of  private  hnes.  At 
the  end  of  1882  there  were  9500  miles  of  state 
lines;  1320  miles  of  private  lines  imder  state 
management;  and  2400  miles  of  private  lines. 
[According  to  the  Statesman's  Year  Book  for  1910, 
the  mileage  of  Prussian  railways  in  1908  was 
22,250  mUes  of  state  lines,  and  1700  miles  of 
private  lines.  The  editor  adds  that  the  whole 
of  the  railways  of  Prussia  will  in  time  become 
national  property.] 

The  control  of  all  this  great  system  of  ownership 
of  railways  in  Prussia  is  given  over  to  a  special 
administration,  at  the  head  of  which  is  the  Minister 
of  Public  Works,  and  under  him  are  all  the  adminis- 
trative officers,  who  respectively  are  located  at 
Berlin,  Bromberg,  Magdeburg,  Hanover,  Erfurt, 
Frankfort,  Elberfelt,  Cologne,  and  Breslau.  These 
directors  are  appointed  by  the  crown,  and  are 
special  administrators  to  take  the  place  of  the 
private  and  individual  administrators  of  the  lines 
to  which  they  respectively  relate.  These  adminis- 
trators have  in  charge  the  expenditure  of  moneys 
necessary  for  the  establishment  of  new  lines,  and 
by  the  law  of  1883,  10,000  miles  of  new  lines,  to 
belong  to  the  state  and  to  connect  with  the  existing 
lines,  were  devised.  Mr.  Von  der  Leyen,  himself 
one  of  the  most  intelligent  co-operators  in  this 
system  of  state  acquisition,  and  holding  a  position 
of  great  trust  under  the  Minister  of  Public  Works, 


European  Railways  59 

in  an  article  published  in  1883,  in  the  Annual  of 
Legislation,  Administration,  and  Political  Economy, 
Berlin,  says  that  "the  first  beneficial  effects  of  the 
acquisition  of  the  railways  by  the  state  in  Prussia 
was  the  uniformity  of  tariffs  throughout  the 
Empire,  and  the  impossibility  of  obtaining  special 
rates  or  personal  favoritism;  also  the  extension  of 
the  through  ticket  system,  and  the  cheapening 
of  transportation  for  working  men  and  persons  of 
moderate  means."  The  beneficial  effect  of  these 
reforms  is  indicated  by  the  increase  of  business. 
From  1879  to  1882  it  rose  from  12,000  car-loads  to 
15,000  car-loads.  The  surplus  available  for  gen- 
eral state  purposes,  arising  from  the  administration 
of  the  railways,  over  and  above  interest  on  money 
expended  by  the  state  on  its  state  lines  and  operat- 
ing expenses,  was,  in  1878-9,  $1,660,000;  in  1879- 
80,  $3,450,000;  in  1880-1,  $9,575,000;  in  1881-2, 
$7,862,500. 

Nearly  aU  railway  concessions  contain  clauses 
making  it  incumbent  upon  the  board  of  adminis- 
trators of  the  railway  in  all  cases  to  come  to  proper 
agreements  as  to  correspondence  of  time-tables  in 
the  administration  of  railways  joining  each  other. 
The  time-tables  can  go  into  force  only  upon  the 
consent  of  the  government.  Persons  and  merchan- 
dise must  be  conveyed  in  the  order  in  which  the 
application  is  made.  No  difference  is  to  be  made 
between  passengers  and  goods  which  come  directly 
to  the  lines,  and  those  which  come  to  them  in 
transit  from  other  railways.    A  special  tariff  is  also 


6o      Railways  in  the  United  States 

prescribed.  The  state,  therefore,  in  addition  to 
being  represented  on  every  railway  board,  and 
being  in  itself  an  administrator  of  railways,  enters 
to  a  large  degree  as  a  member  into  all  the  councils 
of  railway  management  in  fixing  rates  and  in 
determining  through  traffic. 

A  writer  in  the  Quarterly  of  Political  Economy ^ 
Berlin,  1876,  in  an  argument  against  the  mainte- 
nance of  private  control  of  railway  property,  says : 
"The  example  of  the  United  States  affords  nothing 
to  the  point.  There,  the  administration  and  con- 
struction of  railways  in  the  hands  of  private 
individuals  and  corporations  is  so  bad,  and  so 
utterly  irresponsible,  that  that  country  affords  no 
argument  in  favor  of  private  enterprise,  and  yet, 
notwithstanding  this  condition  of  affairs,  no  one 
seeks  a  remedy  for  the  evils  there  existing  by 
placing  the  railways  in  the  hands  of  the  state, 
because  corruption  has  eaten  so  deeply  into  the 
government  that  its  ethical  regeneration  is  scarcely 
to  be  expected  as  long  as  it  has  a  quadrennial 
rotation  of  office,  and  the  state  treasury  is  regarded 
as  the  general  pocket  from  which  each  one  is  to 
abstract  as  much  as  he  can." 

The  reviewer  then  speaks  of  the  system  in 
England,  in  which  the  railway  has,  by  amalgama- 
tion and  consolidation,  extended  itself  and  become 
a  power  within  the  state  so  great  as  to  be  dangerous 
to  the  state.  He  refers  to  the  speech  made  by  the 
president  of  the  chamber  of  commerce  of  Ply- 
mouth, who  says  that  "the  railways  have  become 


European  Railways         v       6i 

our  great  highways,  and  should  be  regarded  from 
an  entirely  different  point  of  view  from  any  other 
undertaking." 

The  writer  further  refers  in  his  article  to  the 
opinion  of  the  royal  railway  inspector  of  Canada, 
in  which  he  says  that  the  monopoly  of  the  railway 
in  that  province  has  become  so  great  that  the  ques- 
tion will  very  soon  be  debated,  whether  the  railway 
should  own  the  state,  or  the  state  the  railway. 
From  all  the  conditions  resulting  from  allowing 
free  scope  in  private  enterprise  in  railway  con- 
struction and  management,  the  reviewer  comes  to 
the  conclusion  that  on  the  whole  it  would  perhaps 
be  better  for  the  German  states  to  own  the  rail- 
ways than  to  allow  them  to  continue  to  be  private 
enterprises,  though  subject  to  state  control. 

'Austria.  This  country  followed  the  course  of 
France,  by  making  concessions  for  the  period  of 
ninety  years  to  the  railways.  The  government 
built  several  important  trunk  lines  at  the  expense 
of  the  state,  some  of  which  are  operated  by  private 
corporations,  but  it  still  owns  its  main  trunk  lines. 
Its  system  of  supervision  of  state  lines,  as  to  the 
tariff  of  both  passenger  and  freight  traffic,  is 
complete.  [The  state  lines  were  6,083  miles; 
companies*  Hnes  worked  by  the  state  3000  miles 
and  worked  by  companies  4249;  total  13,332. 
See  Statesman's  Year  Book  for  19 10.] 

Switzerland.  No  state  lines  exist  in  Switzerland. 
The  republic  has  allowed  private  enterprise  to 


62      Railways  in  the  United  States 

build  a  network  of  railways.  It  has,  however,'  an 
extremely  effectual  system  of  supervising  the 
tariff  of  charges  which  must  exist  thereon.  A 
perpetual  commission  regulates  the  relations  of  the 
corporations  to  the  stockholders  and  the  public, 
and  provides  for  a  thorough  investigation  of  their 
affairs,  and  their  constant  publicity.  [The  five 
principal  Swiss  railway  Hnes  have  since  been 
acquired  by  the  Confederation.  They  consisted 
in  1908  of  31 7 1  miles.  See  Statesman's  Year  Book 
for  1910.] 

Italy.  This  country  owns  of  its  lines  about 
1000  miles  of  rail,  and  is  in  negotiation  for  about 
4000  miles  more,  so  that  within  a  very  short  time 
it  will  possess  a  large  majority  of  the  mileage  of 
rail  within  its  own  territory.  [On  June  30,  1905, 
the  government  resumed  the  management  of  the 
lines.  These  lines  had  been  worked  under  con- 
cessions since  1885.  The  length  of  state  railways 
in  1909  was  7992  miles  out  of  a  total  mileage  of 
10,445.    See  Statesman's    Year  Book  for    1910.] 

EUROPEAN  RAILWAYS  NOT  REGARDED  AS  PRIVATE 

ENTERPRISES 

In  all  these  countries,  therefore,  even  including 
England,  the  railway  has  never  been  regarded 
wholly  as  a  matter  of  private  enterprise.  In  the 
majority  the  state  built  or  assumed  ownership  of 
the  trunk  lines,  and  in  all  of  the  nations  of  conti- 
nental Europe  the  proper  conduct  of  these  corpo- 


English  Legislation  63 

rations  has  been  regarded  as  so  bound  up  with  the 
welfare  of  the  community  that  they  could  not 
safely  be  left  wholly  to  private  enterprise,  but  that 
the  state,  representing  the  public,  should  exercise 
continuously  a  more  or  less  rigid  control  over  their 
construction  and  administration. 

RAILWAY  LEGISLATION  IN  ENGLAND  AFTER  1 839 

Taking  up  the  history  of  the  relation  of  the 
government  to  the  railways  in  England,  where  we 
left  it  with  Mr.  Morrison's  speech  in  1839,  let  us 
look  at  the  steps  taken  by  the  English  people  and 
Government  to  reacquire,  as  to  railway  enterprises, 
the  control  which,  notwithstanding  the  warnings 
given  by  men  like  Stephenson  and  Morrison,  they 
had  allowed  to  slip  from  their  hands. 

In  1839  an  attempt  was  made  by  royal  commis- 
sion to  subject  railway  schemes  to  some  harmon- 
ious direction  as  to  the  points  from  which  the  roads 
were  to  radiate  and  to  which  they  were  to  go,  so  as 
to  make  them  somewhat  analogous  to  the  French 
system ;  but  the  reply  came  that  it  was  already  too 
late,  because  so  many  railroads  had  already  been 
constructed  and  projected  that  it  would  be  an 
unjust  impairment  of  the  rights  of  property  to 
interfere  with  them;  that  the  roads  were  already 
built  and  could  not  be  removed,  and  that  others 
were  too  far  under  way  to  have  their  powers 
changed.  Between  1836  and  1839  public  agita- 
tion was  directed  mainly  against  excessive  charges 


64      Railways  in  the  United  States 

for  passenger  traffic ;  as  to  which,  hmitations  were 
thereupon  fixed.  The  powers  of  the  railways  had 
already  become  so  great  that  many  members  of 
Parliament  were  directly  under  their  influence, 
and  many  others  owed  their  seats  to  the  railway 
power.  Notwithstanding  this  influence,  however, 
a  bill  was  introduced  in  1840  to  create  a  commis- 
sion for  the  superintendence  of  railways,  the 
commission  to  be  a  kind  of  sub-organization  to  the 
Board  of  Trade.  This  bill,  after  several  amend- 
ments, was  carried,  mainly  through  the  influence 
of  Sir  Robert  Peel,  who,  although  a  few  years 
before  bitterly  opposed  to  any  interference  with 
private  control  of  the  railway  system,  now  ad- 
mitted, "that  they  were  monopolies,  and  that  it 
was  necessary  to  create  some  tribunal  as  a  standing 
investigating  committee  for  Parliament,  to  prevent 
too  manifest  and  too  great  an  abuse  on  the  part  of 
these  powerful  and  moneyed  organizations."  The 
bill  was  considerably  modified  during  its  passage 
through  the  house,  more  especially  in  the  second 
section,  which,  as  originally  reported,  had  pro- 
vided for  a  uniform  system  of  book-keeping,  and 
for  a  very  thorough  system  of  reports  on  the  part 
of  the  railways  to  the  Board  of  Trade.  This  pro- 
vision, however,  in  the  bill  that  eventually  became 
law,  was  so  emasculated  as  to  require  simply 
reports  in  such  manner  as  the  railways  saw  fit  to 
make  them.  The  bill  as  passed  embodied  a 
clause  which  established  a  bureau  of  railways  as  a 
part  of  the  Board  of  Trade. 


English  Legislation  65 

A  glance  at  the  55th  volume  of  Hansard's 
Debates,  p.  125,  et  seq.,  will  show  how  greatly  the 
ablest  men  in  Parliament  were,  at  that  time,  under 
the  influence  of  general  phrases  in  relation  to  the 
non-interference  of  government,  and  how  com- 
pletely they  misunderstood  the  essentially  mo- 
nopolistic character  of  the  railway  corporation, 
interference  with  which  was,  in  this  case,  a  duty 
which,  if  neglected,  was  a  renunciation  of  one  of 
the  chief  functions  of  government.  It  was  assumed 
in  the  debate,  by  those  who  were  opposed  to  the 
bill,  that  the  right  of  the  state  with  reference  to 
the  railways  was  entirely  limited  to  securing  the 
safety  of  the  travelling  public,  and  that  as  to  the 
carrying  of  freight  or  goods  the  railway  was  an 
entirely  private  enterprise,  like  any  other  common 
carrier.  The  first  protest  of  moment  against  this 
view,  in  addition  to  Mr.  Morrison's  efforts,  was 
the  publication  of  William  Gault's  pamphlet  on 
Railway  Reform  in  1843.  After  a  very  thorough 
examination  of  the  whole  subject,  and  recognizing 
fully  the  fact,  that,  in  its  importance,  the  railway 
bore  the  same  relation  to  the  highway  that  the 
highway  bore  to  the  foot-path,  inasmuch  as  the 
traffic  of  the  country  was  being  carried,  to  a  very 
considerable  degree,  almost  wholly  by  rail,  he 
came  to  the  conclusion  that  the  existing  lines  of 
rail  should  be  acquired  by  the  state,  and  that  all 
fiurther  extensions  of  the  railway  system  should  be 
carried  on  by  the  state  as  the  owner  of  the  public 
roads. 
5 


66      Railways  in  the  United  States 

At  the  beginning  of  the  session  of  1844,  Mr. 
Gladstone,  then  President  of  the  Board  of  Trade, 
requested  the  House  of  Commons  to  appoint  a 
committee  to  report  what,  if  any,  changes  should 
be  made  in  relation  to  the  consideration  of  railway 
bills;  what  amendments  should  be  made  in  the 
railway  concessions  and  franchises  already  granted, 
and  what  changes,  if  any,  should  be  made  in  the 
standing  orders  as  to  the  manner  of  the  considera- 
tion of  railway  bills.  Mr.  Peel  objected  to  the 
extent  of  the  inquiry,  claiming  that  •it^'wjas  an 
interference  with  vested  rights,  to  consider  grants 
already  made.  He  expressed  his  conviction,  at 
that  time,  that  the  further  development  of  the 
railway  system  would  bring  about  a  competition 
which  in  time  would  do  away  with  much  of  the 
monopolistic  character  of  those  enterprises,  A  com- 
mittee of  fifteen  was  appointed,  and  testimony  was 
taken,  mainly  upon  the  question  of  the  absence  of 
competition  and  combination  between  railways, 
the  building  of  loop  lines  for  subserving  special 
interests  without  regard  to  the  public  needs,  and 
the  tendency  to  amalgamation  which  then  had 
begun  to  make  itself  felt.  A  large  proportion  of 
the  time  of  the  committee  was  taken  up  in  the 
examination  of  the  question  of  minimum  rates  for 
passenger  traffic.  Mr.  Glyn,  the  banker,  who, 
next  to  Hudson,  the  railway  king,  was,  at  that 
time,  the  largest  share  proprietor  in  England,  and 
who  had  been  for  many  years,  and  was  then,  the 
president  of  the  London  &  Birmingham  Railway, 


English  Legislation  67 

stated  his  conviction  that  no  corporation  ought  to 
have  any  larger  powers  than  were  absolutely 
necessary  for  the  profitable  working  of  its  line; 
he  conceded  that  if  the  matter  were  an  entirely 
new  question,  he  had  no  doubt  whatever  but  that 
the  best  way  of  dealing  with  it  was  for  the  state  to 
own  the  railways,  because,  he  said,  the  people  as  a 
whole  had  as  much  right  to  their  great  public 
highways  as  they  had  to  the  light  of  heaven.  On 
economic  groimds,  however,  he  disapproved  of  the 
purchase  of  the  railways  by  the  state,  saying  he 
feared  the  state  would  be  cheated  in  the  trans- 
action, and  intimating  that  the  roads  had  not  cost 
what  they  were  capitalized  at;  but  he  believed 
that  thenceforth  it  was  the  duty  of  the  state  to 
control  the  railways  with  greater  rigor  and  force. 
The  report  finally  made  by  this  committee  con- 
tained a  severe  criticism  upon  the  then  existing 
mode  of  considering  and  passing  railway  bills, 
which  the  report  suggested  should  all  be  sub- 
mitted to  the  Board  of  Trade  for  criticism  before 
being  entertained  by  the  proper  committees  of  the 
Houses  of  Commons  and  of  Lords.  Parliament  took 
up  the  report  for  action  in  1844.  The  suggestion 
was  then  made,  that,  when  any  new  railway  shall, 
after  fifteen  years,  pay  for  three  successive  years, 
10  per  cent,  dividends,  it  shall  be  in  the  power 
of  the  Board  of  Trade  to  revise  its  tariff,  but 
in  that  event,  that  Parliament  must  guarantee 
the  10  per  cent,  dividend  to  the  railway.  This 
suggestion  was   again   modified   by   the   further 


68       Railways  in  the  United  States 

suggestion  that  the  Board  of  Trade  could  demand 
a  rebate  of  the  guarantee  by  reason  of  bad  manage- 
ment. A  further  limitation  was  made  by  pro- 
viding, that,  during  the  existence  of  the  guarantee, 
the  corporation  shall  not  increase  its  capital  stock, 
and  that  at  the  end  of  fifteen  years  the  Board  of 
Trade  might  purchase  every  new  railway  at  twenty- 
five  times  the  average  dividends  of  the  last  preced- 
ing three  years,  from  which,  however,  a  deduction 
was  to  be  made  for  insufficiency  of  the  permanent 
way,  and  for  impairment  of  the  rolling  stock. 

Against  the  passage  of  this  bill  the  railways 
fought  principally  for  time.  In  this  they  were 
aided  by  the  powerful  Sir  Robert  Peel,  who 
suggested  that  a  year's  notice,  at  least,  should  be 
given  before  a  bill  of  such  magnitude  could  be 
passed.     {Hansard' s  Debates,  vol.  i.,  76,  p.  482.) 

Mr.  Gladstone  referred  to  Mr.  Saunders'  testi- 
mony and  to  that  of  George  Hudson,  showing  that 
the  railways  did  not  consider  themselves  free  from 
competition  and  opposition  by  other  lines  of  rail, 
and  his  admission  was  used  by  the  opposition  to 
show  that  the  natural  law  of  competition  would 
apply  to  cure  the  evils  that  were  complained  of. 
Mr.  Gladstone,  in  a  speech,  showed  that  the 
threat  of  the  passage  of  this  law  did  not  prevent 
new  railways  from  being  organized ;  that  fifty  new 
bills,  representing  £20,000,000,  had  been  filed  since 
the  report  was  made.  He  stated  that,  though  he 
knew  the  railway  had  become  sufficiently  powerful 
to  send  representatives  into  Parliament  instead  of 


English  Legislation  69 

having  them  hang  around  the  lobby,  he  did  not 
believe  they  would  become  so  formidable,  or  that 
Parliament  had  sunk  so  low,  that  its  members 
would,  at  the  bidding  of  the  railway  interests, 
refrain  from  giving  their  sanction  to  the  bill 
unanimously  reported  by  their  own  committee. 

John  Bright  was  the  most  formidable  opponent 
to  Mr.  Gladstone's  suggestion.  He  was  a  free- 
trader, flushed  with  the  great  victory  which  had 
just  attended  his  efforts  in  the  establishment  of 
his  principles,  and  was  ready  to  apply  these  princi- 
ples to  the  most  incongruous  subjects.  He  was 
in  the  full  vigor  of  his  power,  and  had  already 
made  for  himself  a  great  reputation  for  honesty  of 
purpose  and  for  oratory.  He  dwelt  upon  the 
enormous  benefits  which  railways  had  conferred 
upon  society,  showed  that  they  were  the  bene- 
factors of  mankind,  and  that  monopolies  had 
always  been  the  enemies  of  mankind;  and  there- 
fore, he  argued,  it  was  monstrous  to  apply  the 
term  monopoly  to  them.  He  showed  that  the 
railways  then  already  represented,  in  the  way  of 
vested  capital,  £60,000,000  in  England;  that  they 
were  carrying  25,000,000  passengers  annually; 
and  that  it  was  extremely  dangerous  to  interfere 
with  so  great  and  constantly  growing  an  interest. 

Sir  Robert  Peel  argued  on  both  sides  of  the 
question,  but  insisted,  almost  in  the  spirit  of 
apology,  that  the  government  had  a  right  to  pro- 
vide the  same  sort  of  publicity,  with  reference  to 
the  railways,  that  it  had  provided  with  reference 


70      Railways  in  the  United  States 

to  the  Bank  of  England's  accounts,  and  he  con- 
cluded with  asking  a  vote  in  favor  of  the  bill.  The 
bill  obtained,  on  the  second  reading,  i86  votes  in 
its  favor,  against  98  in  opposition.  Among  those 
who  opposed  it  were  Messrs.  Bright,  Cobden, 
Milner,  Gibson,  Ricardo,  and  Macaulay.  The  bill 
was  then  considerably  amended  before  it  obtained 
its  third  reading,  all  the  amendments  being  in 
favor  of  the  railways.  As  modified,  it  was  passed, 
but  the  modifications  made  it  useless  legislation. 
The  changes  that  were  made  in  it  gave  the  railways 
twenty-one  years  instead  of  fifteen  before  their 
railway  tariff  could  be  changed,  notwithstanding 
the  payment  of  10  per  cent,  dividend.  It  was 
then  provided  that  the  guarantee  of  the  state 
should  run  for  twenty-one  years  after  the  10  per 
cent,  annual  dividend,  thus  making  it  quite  certain 
that  the  state  would  never  interfere  with  the  tariff. 
All  the  deductions  which,  in  the  event  of  purchase, 
were  to  be  made,  by  reason  of  bad  management 
and  restrictions  upon  increase  of  capital,  and  for 
want  of  repair  of  permanent  way  and  rolling 
stock,  were  struck  out.  The  provisions  with 
reference  to  the  purchase  by  the  government  were 
thus  made  extremely  onerous  to  the  state.  As  the 
provision  in  relation  to  state  acquisition  was 
further  modified  so  that  before  it  could  take  effect 
it  required  another  act  of  Parliament  to  guarantee 
the  purchase  money,  the  act  has  remained  ever 
since,  to  all  intents  and  purposes,  a  dead  letter. 
The  discussion  on  this  bill  did,  however,  direct 


English  Legislation  71 

public  attention  to  the  question,  and  the  Quarterly 
Review  of  1844,  in  an  article  on  "Railway  Legisla- 
tion" (pp.  224,  280),  says  in  conclusion: 

"It  is  perfectly  clear  that  sooner  or  later  this 
great  pubhc  trust  can  not  remain  in  the  hands  of 
private  corporations.  The  railways  themselves 
have  given  the  best  evidence  of  their  desire  and  of 
the  necessity  for  amalgamation,  by  which  they 
admit  that  the  individual  corporation  can  not,  in  a 
system  which  requires  uniformity  and  harmony, 
exercise  absolute  sway;  and  when  the  time  shall 
have  arrived  that  this  amalgamation  will  bring  the 
railway  into  the  hands  of  the  fewer  corporations, 
or  of  a  single  corporation,  which  means  into  the 
hands  of  a  few  individuals,  it  is  then  but  a  step  to 
the  suggestion  that  the  state,  for  its  own  safety,  is 
compelled  to  take  possession  thereof;  for  a  system 
of  transportation  which  permeates  every  part  of 
the  land,  which  destroys  and  devours  every  other 
system  of  intercommunication,  which  incorpo- 
rates itself  into  every  public  and  private  interest, 
which  is  as  universal  and  all-present  as  the  arterial 
and  venous  systems  of  the  human  body,  sooner  or 
later  will  come  under  the  general  control,  for 
better  or  worse,  of  the  state  organization." 

In  1844,  a  special  act  was  passed  (8  and  9 
Victoria,  chap.  96)  by  which  general  leasing 
powers  in  private  railway  acts  were  restricted, 
and  all  powers  granted  by  any  private  act  of  that 
session,  to  lease,  were  repealed. 

Pursuant  to  the  act  of  1844,  a  railway  board. 


72      Railways  in  the  United  States 

which  existed  just  one  year,  was  constituted  as 
part  of  the  Board  of  Trade,  the  duty  of  which  was 
to  report  upon  new  railway  schemes  and  purchases, 
and  upon  proposed  extensions,  amalgamations,  and 
competition.  The  board  reported  by  giving  its 
decisions  without  assigning  reasons.  It  sat  in 
secret,  and  published  no  debates.  This  un-Eng- 
lish proceeding  subjected  it  to  a  degree  of  criticism 
and  animosity  that  compelled  the  government  to 
recommend  that  the  board  be  abolished,  which 
was  accordingly  done  in  1845.  In  that  year  the 
competition  between  railway  corporations  became 
so  keen,  and  the  canal  companies  suffered  to  such 
a  degree  from  it,  that  a  law  was  passed  authorizing 
the  canal  companies  to  vary  their  tolls,  and  to 
borrow  money  so  as  to  maintain  the  competition. 
The  railways  thereupon  rapidly  bought  up  the 
canals,  and  canal  and  railway  amalgamations  went 
on  with  great  vigor.  In  1846,  one  year  thereafter, 
a  committee  of  Parliament  reported  that  within 
that  year  a  large  number  of  canals  had  passed 
practically  under  the  control  of  the  railway  cor- 
porations, and  were  working  under  joint  manage- 
ment. This  committee  recommended  that  all 
amalgamation  between  canal  and  railroad  com- 
panies should  be  forbidden,  except  under  the 
sanction  of  Parliament.  They  also  recommended 
that  it  was  absolutely  necessary  that  some  depart- 
ment of  the  executive  government  should  be  so 
constituted  as  to  command  general  respect  and 
confidence,  and  to  be  charged  with  the  supervision 


English  Legislation  73 

of  railways  and  canals,  with  full  power  to  enforce 
such  regulations  as  might,  from  time  to  time,  be 
indispensable  for  the  accommodation  and  general 
interest  of  the  public.  They  particularly  recom- 
mended this  in  view  of  the  fact  that  the  private 
arrangements  which  are  made  between  railway 
companies  and  railway  and  canal  companies,  and 
which  may  or  may  not  be  ultra  vires,  do  not  come 
under  the  supervision  of  Parliament  at  all,  and 
expressed  their  belief  that,  with  a  properly  consti- 
tuted executive  body,  it  would  come  under  their 
supervision,  and  could  be  subjected  to  restriction. 

Between  1844  and  1846,  came  the  period, 
already  referred  to,  of  the  railway  speculative 
mania.  The  influence  which  that  had  upon  Parlia- 
ment is  given  by  Francis,  in  his  History  of  the 
English  Railway,  in  these  words: 

"Members  were  personally  canvassed,  solicita- 
tions were  made  to  peers,  influences  of  the  most 
delicate  nature  were  used,  promises  were  given  to 
vote  for  special  lines  before  the  arguments  were 
held,  advantages  in  all  forms  and  phases  were 
proposed  to  suit  the  circumstances  of  some  and 
the  temper  of  others.  Letters  of  allotment  were 
tempting,  human  nature  was  frail,  and  the  pre- 
mium on  five  hundred  shares  irresistible.  The 
AthencBum,  about  that  time,  said:  'It  is  the 
fashion  to  assume  that  our  legislators  are  not  now 
open  to  pecuniary  bribes.  It  may  be  so,  but  we 
must  leave  that  question  to  be  decided  by  our 
children's  children.     If  public  rumor  be  no  more 


74       Railways  in  the  United  States 

than  usually  scandalous  and  false,  there  are  some 
curious  revelations  yet  in  store  for  these  young- 
sters, relating  to  railway  bills. '  The  curious  reve- 
lations had  not  to  be  waited  for  until  the  birth  of 
our  children's  children,  but  they  came  in  1845,  and 
in  the  winter  of  1846,  with  the  railway  crash.  A 
return  called  for  by  the  House  of  Commons,  of  the 
dealers  in  railway  undertakings,  formed  a  very 
remarkable  blue  book.  The  noble,  who,  in  the 
pride  of  blood  and  birth,  had  ever  held  traffic  in 
contempt,  was  there  blazoned  as  a  trader.  The 
priest,  who,  at  his  desk,  prayed  to  be  delivered 
from  the  mammon  of  unrighteousness,  was  there 
revealed  in  the  city  to  sell  his  scrip  at  a  premium. 
There  were  900  lawyers  and  364  persons  connected 
with  the  banking  interest,  who  subscribed  con- 
tracts for  above  £2000 ;  one  solicitor  was  down  for 
£154,000.  There  were  157  members  of  Parlia- 
ment, of  whom  one  signed  for  £290,000,  one  for 
£250,000,  and  one  for  £171,000;  while  the  remain- 
der were  down  for  sums  which  must  have  influ- 
enced their  feelings  to  a  degree  which  might  have 
influenced  their  votes."  (Francis'  History  of  the 
English  Railway,  vol.  ii,  pp.  188-190.) 

In  1846,  an  act  was  passed  constituting  the  rail- 
way commission,  which  was  composed  of  five  per- 
sons, the  president  of  which  was  paid  £2000  a 
year,  two  members  were  paid  £1500  each,  and  two 
others  received  no  pay.  The  main  purpose  of 
this  commission  was  to  take  into  consideration 
all  schemes  which  were  to  be  submitted  to  Parlia- 


English  Legislation  75 

ment,  to  make  special  inquiry  and  reports,  and 
formally  to  report  upon  all  bills  before  Parliament 
on  railway  matters,  so  as  to  guide  the  parlia- 
mentary committee.  But  as  the  railway  com- 
mittees of  the  House  of  Commons  and  House  of 
Lords  refused  to  be  guided  by  the  recommenda- 
tions of  this  commission,  it  was  abolished,  and 
its  duties  were  once  more  transferred  to  the 
Board  of  Trade.  A  series  of  bills  was  passed  to 
prevent  the  absorption  of  lines  by  rival  companies, 
but  the  ingenuity  of  railway  counsel  was  superior 
to  the  ingenuity  that  drafted  these  bills,  and  by 
the  purchase  of  stock  of  other  railways  and 
appointing  railway  directors  who  were  mere 
simulacra,  the  railway  corporations  absorbed 
each  other's  lines  without  having  parliamentary 
powers  so  to  do. 

In  1853,  another  railway  special  committee  was 
appointed  by  Parliament.  This  committee,  after 
taking  testimony,  recommended  the  appointment 
of  a  committee  of  a  more  permanent  character 
than  had  theretofore  been  in  existence,  to  consider 
all  schemes  submitted  to  Parliament  at  every 
session,  and  that  a  railway  department  of  the 
government  should  be  created  for  the  purpose  of 
affording  assistance  and  advice  whenever  the 
committee  might  desire  it.  It  then  pointed  out 
that  amalgamation  of  railways  had  proceeded  to 
such  a  degree  in  England  that  each  particular 
part  of  England  had  become  the  centre  of  a  system 
of  railway  management  of  its  own,  and  that  the 


^^       Railways  in  the  United  States 

great  railway  corporations  had  swallowed  up  all 
the  competing  and  intersecting  lines.  It  sug- 
gested the  passage  of  a  bill  relating  to  the  traffic 
arrangements  between  different  companies,  and 
submitted  a  plan  of  a  measure  by  which  the  canals 
were  to  be  maintained.  The  result  of  these 
recommendations  was  the  passage  of  the  canal 
and  railway  traffic  act  of  1854,  and  a  prohibition  of 
preferences  in  traffic  contracts  given  by  different 
railways.  Part  of  the  scheme  of  the  act  of  1854 
was  to  submit  grievances  to  the  Board  of  Trade 
only  after  the  Court  of  Common  Pleas,  sitting  as 
a  court,  assisted  by  an  engineer  and  barrister,  had 
determined  that  an  actual  grievance  existed.  This 
part  of  the  act  proved  inoperative.  Lord  Camp- 
bell foresaw  and  foretold  that  it  would  become 
inoperative,  insisting  that  a  lay  tribunal  should  be 
created  for  the  investigation  of  such  questions,  and 
that  judges  were  not  the  proper  persons  to  consider 
matters  of  that  kind,  as  they  were  naturally  dis- 
inclined to  act  in  an  advisory  manner  to  govern- 
mental biu-eaus,  and  that  such  disinclination 
would  render  resort  to  them  well-nigh  useless. 
However,  the  law  of  1854  contained  one  very 
useful  provision,  to  the  effect  that  no  preferences 
of  any  kind  should  be  given  by  railways  for  services 
of  a  like  character,  and  forbade  all  discrimination 
between  individuals  as  to  traffic  of  like  character. 
In  1865,  a  royal  commission  was  appointed  to 
consider  the  subject  of  railway  communication. 
It  made  its  report  in  1867,  after  taking  a  great 


English  Legislation  77 

mass  of  testimony  as  to  British  and  foreign  rail- 
ways. As  regards  legislation,  this  commission 
insisted  upon  the  expediency  of  requiring  the 
Board  of  Trade  to  assist  the  parliamentary  com- 
mittees by  reports.  It  made  many  valuable  sug- 
gestions as  to  interchange  of  traffic;  it  considered 
the  subject  of  amalgamation,  and  the  necessity  of 
checking  it;  nothing  was  done,  however,  to  prevent 
the  proceeding  of  the  amalgamation  and  consolida- 
tion of  English  railways,  as  is  shown  by  the  fact, 
that,  in  1845,  the  London  &  North  V/estern  Railway 
had  owned  but  379  miles  of  road,  and  that  in  1870  it 
operated  and  owned  1507  miles.  The  Great  Wes- 
tern, which  originally  consisted  of  118  miles, 
operated  and  owned  1370  miles  in  the  year  1870. 
The  North  Eastern,  which  in  1846  owned  274 
miles,  had,  in  1870,  extended  its  line  so  as  to  be 
the  owner  of  128 1  miles;  and  the  Great  Eastern, 
which  originally  had  138  miles  of  road,  operated 
and  owned  874  miles  in  1870.  Amalgamation  had 
therefore  proceeded  in  England  to  such  a  degree 
that,  in  1870,  the  field  was  practically  divided 
between  the  great  lines  of  railway,  so  that,  some- 
what like  France,  England  had  seven  great  sys- 
tems of  lines  brought  into  existence  without 
concessions  of  fields  of  territory  by  the  state,  but 
which,  by  the  natural  course  of  development  and 
consolidation,  and  the  economy  produced  by  such 
consolidation,  divided  the  field  of  railroad  enter- 
prise in  England,  and  created  a  concentrated 
power  that  presented  at  that  time  to  the  English 


78       Railways  in  the  United  States 

Government  the  formidable  question,  whether 
ultimately  the  state  should  control  the  railways,  or 
the  railways  control  the  state. 

We  now  come  to  the  most  important  epoch  in 
the  English  railway  history,  one  reversing  the 
policy  which,  down  to  that  period,  regarded  the 
railway  as  private  enterprises — the  appointment 
of  a  joint  select  committee,  in  1872,  of  the  House 
of  Lords  and  House  of  Commons,  to  consider  the 
subject  of  railways.  This  committee  was  com- 
posed of  Mr.  Chichester  Fortescue,  Lord  Derby, 
the  Marquis  of  Salisbury,  Earl  Cowper,  Lord 
Redesdale,  Lord  Belpur,  Mr.  Hunt,  Mr.  Childers, 
Mr.  Cross,  Mr.  Dodson,  and  Mr.  Stephen  Cave. 

After  taking  testimony  covering,  with  appendix, 
upward  of  a  thousand  pages  of  an  English  folio 
blue  book,  the  committee  recommended  the  organ- 
ization of  a  new  tribunal  to  consider  railway 
grievances,  constituted  both  as  a  court  and  as  an 
advisory  committee  on  railway  legislation.  The 
committee  recommended  this  course  in  preference 
to  fixing  tariffs  by  statute,  as  the  change  of  cir- 
cumstances often  makes  such  tariffs  inapplicable 
or  impossible.  This  was  not  only  the  recommenda- 
tion of  the  committee,  but  followed  the  opinion  of 
almost  every  leading  railway  official  of  England 
who  was  examined  as  to  the  proposed  remedies, 
among  whom  were  Mr.  Allport,  Sir  Edward  Wat- 
kin,  Mr.  Price,  Mr.  Broughton,  Mr.  Dawson,  and 
others. 

The  committee  conceded  that  it  was  difficult 


English  Legislation  79 

to  provide  any  fixed  or  self -regulating  rules  which 
would,  through  the  medium  of  self-interest  or  of 
the  ordinary  action  of  law,  protect  the  public. 
They  recommended  that  the  proposed  tribunal 
should  be  endowed  with  certain  functions,  among 
which  were :  to  see  to  it  that  railways  publish  rates 
and  fares  and  live  up  to  them,  and  to  consider 
and  act  upon  such  alterations  as  from  time  to 
time  are  adopted  in  the  classifications ;  to  examine 
into  every  case  of  undue  preference ;  and  to  inves- 
tigate complaints  of  unfairness  between  traders 
or  between  towns  and  districts,  so  far  as  they  can 
be  raised  under  the  railway  and  canal  traffic  act 
(Lord  Cardwell's  act  of  1854,  ^^^  amendments). 
It  having  been  found  that  the  expense  of  going  to 
the  Court  of  Common  Pleas  was  so  great  as  to  give 
the  wealthy  companies  great  advantages  over  pri- 
vate traders,  and  that  non-publication  of  rates  pre- 
vented the  trader  from  knowing  whether  he  had 
a  case  or  not,  the  committee  recommended  that 
exclusive  jurisdiction  be  given  to  the  tribunal  to 
examine  into  cases  of  preferences,  and  that  appeals 
from  these  decisions  be  limited  to  such  cases  as  the 
special  tribunal  should  certify  involved  questions 
of  law  which  should  be  considered  by  the  West- 
minster tribunals.  A  further  function  with  which, 
according  to  the  recommendations  of  the  commit- 
tee, the  tribunal  was  to  be  clothed,  was  to  see  to  it 
that  proper  facilities  be  given  for  the  forwarding  of 
passengers  and  goods  under  the  provision  of  the 
railway  and  canal  traffic  act  relating  to  that  subject. 


8o       Railways  in  the  United  States 

It  was  conceded,  in  the  report  of  the  committee, 
by  Mr.  Broughton,  Sir  Edward  Watkin,  and  Mr. 
Price,  that  the  courts  were  incompetent  to  deal 
with  the  subject,  and  that  arbitration  was  un- 
satisfactory; hence  the  necessity  for  the  organiza- 
tion of  a  tribunal  to  secure  those  ends. 

The  committee  also  recommended  the  control 
of  tolls  on  canals  by  the  tribunal,  and  the  enforce- 
ment of  any  obligation  imposed  on  the  railway 
companies  to  secure  the  proper  maintenance  of 
free  navigation  on  the  canals.  The  tribunal  was 
to  settle  questions  between  the  local  authorities 
and  the  companies  concerning  new  branch  lines, 
and  also  to  settle  all  disputes  between  railway  and 
canal  companies.  They  were  also  to  settle  all 
questions  arising  between  the  war  and  postofiice 
departments  on  the  one  hand,  and  the  companies 
on  the  other. 

The  additional  duty  to  be  conferred  on  this 
special  body  was  to  advise  Parliament  in  reference 
to  railway  legislation.  As  to  the  necessity  for 
constituting  this  court,  the  committee  say:  "No 
existing  institution  possesses  the  necessary  quali- 
ties. The  Board  of  Trade  has  not  the  requisite 
judicial  character  or  means  of  action,  a  court  of 
law  fails  in  practical  knowledge  and  administra- 
tive facility,  and  the  committees  of  the  Houses  of 
Parliament  have  no  permanence."  A  new  body, 
therefore,  was,  in  their  opinion,  to  be  constituted 
for  all  these  purposes,  and  to  wield  all  these  pow- 
ers, to  be  called  the  railway  and  canal  commission, 


English  Legislation  8i 

and  to  consist  of  no  less  than  three  persons  of 
high  standing,  one  of  whom  should  be  an  eminent 
lawyer,  and  another  a  person  well  acquainted  with 
railway  management,  their  proceedings  to  be  as 
simple  and  inexpensive  as  is  consistent  with  giving 
due  consideration  to  and  hearing  questions  openly 
and  fairly.  In  conclusion,  the  committee  state 
that  "competition  between  railways  exists  only 
to  a  limited  extent,  and  can  not  be  maintained  by 
legislation;  that  combinations  between  railway 
companies  were  increasing  and  likely  to  increase, 
whether  by  amalgamation  or  otherwise;  that  the 
self-interest  of  the  companies  alone  was  not  suf- 
ficiently protective  of  public  interests,  and  that 
their  interest  was  only  to  a  limited  extent  the  in- 
terest of  the  public.  And  it  therefore  becomes 
necessary,"  they  add,  "to  consider  what  can  be 
done  in  the  way  of  enforcing  statutory  obliga- 
tions." As  to  the  ineffectual  character  of  past 
legislation,  both  in  limiting  dividends  and  creating 
a  maximum  of  rate  of  charge,  the  committee  were 
by  no  means  mealy-mouthed  in  the  way  of  con- 
demnation. They  say  of  the  railway  companies: 
"They  are  monopolies  who  are  unlimited  in  their 
charges  for  carriage  except  by  the  parliamentary 
maximum,  and  who  are  restricted  by  no  definite 
limit  whatever  as  regards  terminal  charges;  these 
two  charges  they  mix  up  together,  and  under  the 
present  system  do  not  separate.  They  are  prac- 
tically under  no  restriction  except  that  of  their 
own  interest,  which  may  not  be  the  same  as  that 

6 


S2       Railways  in  the  United  States 

of  the  public.  They  claim  and  exercise  the  right 
to  vary  their  charges  to  any  extent  they  please 
within  the  parliamentary  maximum,  to  favor  one 
set  of  men  or  description  of  goods  at  the  expense 
of  another;  to  charge  high  rates  for  short  dis- 
tances, and  low  rates  for  long  distances,  or  to 
charge  two  different  rates  for  the  same  service  if 
they  think  it  to  their  interest  to  do  so;  and  not 
only  do  they  claim  to  exercise  all  these  powers,  but 
they  refuse  to  tell  the  public  how  they  exercise 
them  or  why  they  exercise  them.  The  remedies 
given  by  the  canal  and  traffic  act  of  1854  niust, 
under  such  circumstances,  fail  for  want  of  the  re- 
quisite knowledge;  and  the  recent  act,  by  which 
companies  carrying  goods  are  boimd,  on  appHca- 
tion  made  within  a  week  after  payment,  to  give 
an  account  distinguishing  between  rates  for  con- 
veyance and  terminal  charges,  is  wholly  useless, 
because,  in  the  first  place,  the  trader  is  practically 
unable  to  enforce  the  law  against  the  rich  and 
powerful  company;  in  the  second  place,  he  wants 
to  know  what  he  has  to  pay  before  paying  it,  and 
also  what  his  neighbors  and  rivals  are  paying ;  and 
in  the  third  place,  because  the  companies  do  not 
themselves  distinguish  accurately  between  ter- 
minal charges  and  mileage,  and,  when  an  inquiry 
is  made,  can  give  only  an  approximate  answer." 
Upon  the  question  whether  the  interest  of  the 
public  and  that  of  the  companies  are  identical,  in 
the  same  sense  that  they  are  in  the  case  of  a  private 
trader,  the   committee    say   that    "it   must   not 


English  Legislation  83 

be  hastily  assumed  that  self-interest  will  play  the 
same  part  in  these  large  undertakings  which  it 
plays  in  ordinary  trading  concerns.  There  is  a 
powerful  bureaucracy  of  directors  and  officers. 
The  real  managers  are  far  removed  from  the 
influence  of  the  shareholders,  and  the  latter  are,  to 
a  great  extent,  a  fluctuating  and  helpless  body. 
The  history  of  railway  enterprise  shows  how  fre- 
quently their  interests  have  been  sacrificed  to  the 
policy,  the  speculations,  or  the  passions  of  the  real 
managers.  On  the  other  hand,  the  directors  and 
principal  officers  of  these  great  undertakings  are 
often  men  of  high  standing,  who  feel  that  their 
position  is  something  different  from  that  of  mere 
managers  of  a  trading  concern,  and  become  in  a 
certain  sense  amenable  to  public  opinion,  and  es- 
pecially to  its  expression  in  Parliament.  Thus  for 
good  as  well  as  for  evil  the  management  of  railways 
differs  from  that  of  an  ordinary  trade  or  manufact- 
ure, and  approximates  in  some  degree  to  the  busi- 
ness of  a  public  department. "  And  as  a  summary 
of  the  history  of  legislation  preceding  the  sessions 
of  the  committee,  they  state  "that  committees 
and  commissions  carefully  chosen  have  for  the  last 
thirty  years  clung  to  one  form  of  competition 
after  another,  but  that  it  has  nevertheless  become 
more  and  more  evident  that  competition  must  fail 
to  do  for  railways  what  it  does  for  ordinary  trade, 
and  that  no  means  have  yet  been  devised  by  which 
competition  can  be  permanently  maintained. " 
This  report,  made  under  a  liberal  government, 


S4       Railways  in  the  United  States 

and  one  which  was,  therefore,  considerably  under 
the  influence  of  the  very  men  who  opposed  all 
interference  with  railways  on  the  ground  that 
such  interference  was,  in  one  form  or  another,  a 
violation  of  the  principles  of  free  trade,  marked  a 
complete  change  of  the  views  of  the  leading  politi- 
cal thinkers  of  England.  Even  Mr.  Bright  no 
longer  opposed  the  formation  of  a  railway  com- 
mission. Experience  had  taught  the  English 
people  that  in  many  departments  of  human 
activity  the  doctrine  of  non-interference  of  govern- 
ment would  not  apply,  and  not  only  were  railways 
rapidly  being  subjected  to  governmental  super- 
vision and  control,  but  also  factories,  merchant 
shipping,  and  other  industrial  manifestations.  The 
report  of  the  railway  committee  of  1872  resulted  in 
the  law  of  1873,  creating  the  tribunal  recommended 
by  the  commission.  The  gentlemen  appointed  by 
the  crown  under  this  commission  were  Sir  Fred- 
erick Peel  (the  second  son  of  Sir  Robert  Peel), 
Mr.  William  Phillip  Price,  who  was  for  many 
years  the  chairman  of  the  Midland  Railway  Com- 
pany, and  Mr.  Macnamara,  who  held  the  position 
until  1877  (the  time  of  his  death),  when  his  place 
was  filled  by  the  appointment  of  Mr.  Alexander 
Edward  Miller.  Mr.  Balfour  Browne  became  the 
registrar  of  the  railway  commission.  A  large  num- 
ber of  cases  were  brought  before  the  commission, 
which  were  promptly  and  ably  dealt  with. 

The  commission  was  originally  appointed  for 
five  years.     During  those  five  years  the  railroad 


English  Legislation  85 

companies  tried  two  different  methods  of  dis- 
crediting the  commission.  One  method  was,  by- 
carrying  cases  up  on  appeal,  to  show  that  the 
commission  acted  arbitrarily  and  against  law;  the 
other  was,  to  avoid  as  much  as  possible  resort  to 
the  commission  by  complying  with  all  the  laws, 
and  settling  cases  before  they  could  be  brought  to 
the  commission's  attention.  By  the  one  course 
they  tried  to  prove  that  the  commission  was 
composed  of  men  not  well  qualified  for  the  work, 
and  by  the  other,  that  it  was  superfluous.  In 
both  attempts  they  signally  failed.  The  cases 
carried  up  by  them  on  appeal  were  generally 
affirmed  in  favor  of  the  commission,  and  the  fact 
that  the  fear  of  the  railway  commission  induced 
the  railway  companies  to  behave  with  proper 
regard  for  the  laws  which  constituted  them,  and 
in  the  interest  of  the  public,  did  not  prove  that 
the  rod  was  superfluous  by  reason  of  it  not  being 
necessary  to  apply  it,  but  proved  that  the  very 
existence  of  the  commission  had  a  wholesome 
effect  upon  the  railway  companies.  In  1878, 
therefore,  notwithstanding  the  efforts  of  the  rail- 
way corporations,  and  more  especially  the  strenu- 
ous opposition  of  Sir  Daniel  Gooch,  chairman  of 
the  Great  Western  Railway,  the  commission  was 
reconstituted  by  an  act  enlarging  its  powers,  and 
the  same  commissioners  were  continued  in  office. 
The  railway  commission  is  now  [1883]  a  permanent 
tribunal  of  the  English  judicial  and  administrative 
system,  and  will  in  all  probability  be  made,  within 


86       Railways  in  the  United  States 

a  very  short  period,  one  of  the  branches  of  the 
supreme  court  of  judicature,  with  the  power  of 
appeal  limited  so  as  to  avoid  the  expensiveness  of 
protracted  litigation,  ruinous  in  England  to  a 
private  litigant,  against  the  practically  illimitable 
purse  of  a  great  corporation  such  as  the  London  & 
North  Western  or  London  &  Midland  Railway. 

With  the  appointment  of  the  commission  of 
1873,  the  English  railway  system  entered  upon  a 
new  phase.  A  proposition  of  the  ownership  by 
the  state  of  the  railways  of  England,  which  twenty 
years  ago  [i860],  was  almost  looked  upon  as 
chimerical,  is  now  regarded  as  a  very  possible,  and 
will  very  soon  be  regarded  as  a  very  probable  con- 
tingency. The  amalgamations  which  have  been 
going  on  have  somewhat  facilitated  this  possible 
acquisition  by  the  state.  Lord  Derby,  in  a  dis- 
cussion of  that  subject  at  a  meeting  of  the  Society 
of  Arts  in  1873,  stated  that  he  had  not  the  slightest 
doubt,  that,  if  the  public  really  wanted  the  rail- 
ways purchased  by  the  state,  it  could  be  done,  and 
the  question  of  price  would  not  present  an  insuper- 
able difficulty.  The  first  step  in  that  direction 
has  already  been  taken  in  England  by  the  purchase 
of  the  telegraph  lines  and  adding  that  service  to 
the  postal  department  of  the  government. 

Mr.  Joseph  Parsloe,  in  a  monograph  on  the 
railways,  says  upon  this  subject,  after  weighing 
the  arguments  pro  and  con  as  to  state  purchase: 
that  "an  endeavor  has  been  made  to  show  that 
enormous  benefits  would  accrue  from  the  manage- 


English  Legislation  87 

ment  of  railways  by  the  state.  At  the  same  time 
it  should  be  only  after  the  very  fullest  considera- 
tion of  the  question,  in  all  its  multitudinous 
bearings,  that  such  a  change  in  working  the 
system  should  be  introduced.  It  has  been  a  com- 
mon practice  on  the  part  of  some  critics  to  char- 
acterize as  visionaries  any  who  have  urged  the 
adoption  of  a  scheme  of  state  purchase;  or  the 
ability  to  form  a  correct  judgment  upon  the  matter 
has  been  questioned.  For  the  most  part  such 
criticism  has  originated  with  those  interested  in 
keeping  things  as  they  are,  and  who,  while  ques- 
tioning the  usefulness  of  one  proposal,  have  not 
been  prepared  with  any  other  to  put  in  its  place. 
It  will  scarcely  be  questioned  that  our  railways 
have  in  them  the  material  from  which  it  is  possible 
to  obtain  a  much  larger  amount  of  national  benefit 
than  is  now  derived.  What  remains  to  be  done  is, 
that  the  best  means  shall  be  adopted  for  the 
attainment  of  the  greatest  public  good,  and  if  any 
plan  preferable  to  state  management  can  be 
devised,  it  will  doubtless  be  received  with  satis- 
faction." He  himself  seems  to  be  doubtful  as  to 
whether  any  such  plan  can  be  devised. 

One  of  the  dangers  apprehended  by  the  oppo- 
nents of  state  interference  in  England  was,  that 
in  the  creation  of  a  special  tribunal  to  supervise 
railway  administration  the  individual  shareholder 
would  be  injured.  The  very  opposite  has  been 
the  result.  Apart  from  the  fact  that  from  1873 
there  was  considerable  additional  activity  in  the 


88       Railways  in  the  United  States 

commerce  of  England,  a  great  general  rise  in  the 
value  of  railway  securities  has  taken  place  since 
that  time,  not  entirely  attributable  to  the  increased 
activity  of  trade  and  commerce,  but  due  in  great 
part  to  the  fact  that  in  England,  as  in  all  other 
countries  where  private  administrations  were  freed 
from  the  direct  supervision  of  the  state,  the 
indirect  and  comparatively  remote  supervision 
exercised  by  the  shareholders  over  the  corporate 
managers  was  not  sufficient  to  insure  the  most 
economical  and  wisest  administration.  Special 
interests  of  railway  directors  would  interfere  with 
the  administration,  would  cause  the  building  of 
loop  lines  for  the  purpose  of  benefiting  special 
local  investments  by  them  and  their  friends,  and 
even  the  management  of  English  railways  is  not 
entirely  free  from  jobbery  to  benefit  members  of 
the  boards  of  direction.  The  supervision  of  the 
state  has  made  this  so  difficult  and  almost  impos- 
sible that  the  administration  of  those  trusts  has 
sensibly  and  visibly  improved.  No  interest  has 
reaped  a  larger  benefit,  not  even  the  public,  than 
the  shareholder  himself,  from  the  reversal  of  the 
policy  of  the  English  Government.  Greater  cer- 
tainty and  publicity  of  railway  charges,  and  the 
system  of  interchange  of  traffic,  facilitated  and 
enforced  by  the  railway  commission,  have  been 
of  as  great  a  benefit  to  the  stockholder,  on  the  one 
hand,  as  the  holding  of  boards  of  direction  to  a 
rigid  amenability  to  the  public  has  been  of  benefit, 
on  the  other  hand,  to  the  people. 


CHAPTER  II 

Legislation  Concerning  and  Management  of 
Railways  in  the  United  States 

absence  of  governmental  supervision 

After  the  passage  by  the  State  of  New  York,  in 
1850,  of  its  general  railway  act  (see  the  preceding 
chapter)  there  was  inaugurated  in  the  United 
States  a  deliberate  withdrawal  of  governmental 
supervision  from  railway  enterprises,  on  the  theory 
that  they  were  private  businesses,  to  be  left 
as  unrestricted  as  the  manufacture  of  boots  or 
clothing. 

The  New  York  law,  with  but  slight  modifica- 
tions, was  enacted  by  the  various  States,  so  as  to 
promote  railway  building,  and  also  to  remove  the 
corrupting  tendency  of  special  railway  legislation. 
When  each  railway  corporation  was  the  recipient 
of  a  special  grant  by  legislative  enactment,  the 
railways,  in  consequence  of  the  large  interests 
involved,  corrupted  the  members  of  the  legislature, 
and  it  was  honestly  supposed  that  by  permitting 
everybody  to  build  railways  the  principle  of  com- 
petition would  be  applicable.  It  was  argued  that 
there  could  be  no  such  thing  as  monopoly  in 

89 


90       Railways  in  the  United  States 

matters  free  to  all,  and  that  the  rivalry  between 
the  respective  lines  for  business  would  create,  as 
to  railway  administration  and  railway  manage- 
ment, the  same  beneficial  results  that  rivalry  and 
competition  create  in  other  private  enterprises. 
The  rapid  development  of  the  country  from  1850 
to  1857,  under  the  low  tariff,  good  crops,  and  gen- 
eral confidence,  in  connection  with  the  rapid 
development  of  the  railway  system,  prevented, 
down  to  that  period  of  time,  any  evil  effects  aris- 
ing from  this  absence  of  control  from  becoming 
apparent.  Though  some  few  evil  consequences 
did  come  to  the  surface,  yet  these  were  so  largely 
counteracted  by  the  beneficial  results  of  railway 
construction  that  the  community  regarded  them 
as  but  passing  vexatious  incidents  to  a  great 
benefit,  and  thought  that  time  would  cure  the  evil. 

RAILWAY  REORGANIZATION  COMMITTEES 

When,  in  consequence  of  the  financial  crisis  of 
1857,  many  of  the  railways  became  embarrassed 
and  mortgages  were  foreclosed,  a  new  device  was 
concocted,  which  at  the  outset  appeared  conserva- 
tive and  innocent  enough,  but  brought  in  its  train 
evil  consequences  of  considerable  magnitude  in 
the  relation  of  the  railway  to  the  state.  These 
foreclosures,  if  carried  out  rigorously,  threatened 
to  destroy  the  value  of  all  junior  mortgages  and  of 
railway  stock.  The  junior  mortgagees  and  the 
stockholders  thereupon  fought  desperately  in  the 


Reorganization  Committees        91 

courts,  to  delay  as  much  as  possible  the  right  of 
the  holders  of  the  bonds  under  the  first  mortgage 
either  to  take  possession  of  the  railway,  or,  by  a 
sale  under  the  hammer,  to  cut  out  all  equities 
beyond  the  first  mortgage,  in  the  hope  that  such 
delay  would  tide  the  road  over  into  better  times. 
To  bridge  over  these  difficulties,  and  to  prevent 
such  delays,  railway  lawyers  devised  a  scheme  of 
reorganization  committees,  to  represent  in  the 
reorganization  of  railways  all  the  rights  existing 
with  reference  to  the  property  at  the  time  of  the 
insolvency,  and  on  their  behalf  to  repurchase  the 
property,  and,  by  a  new  capitalization,  to  readjust 
these  rights.  Under  the  reorganization  the  first 
mortgage  holders  received  new  bonds  representing 
again  a  first  lien,  and  certificates  or  bonds  to  repre- 
sent accrued  interest;  the  junior  mortgages  were 
again  recognized  by  junior  liens  or  preferred  stock ; 
and  the  stockholders  generally,  on  condition  of 
making  some  payment  toward  defraying  the 
expenses  of  the  readjustment  and  putting  the  line 
in  proper  condition,  received  scrip  or  stock  to  re- 
present their  former  interests  in  the  roads.  Bank- 
ruptcies, therefore,  did  not,  after  this  device  was 
generally  adopted,  produce  as  to  railways  the 
same  result  in  the  way  of  the  destruction  of 
fictitious  value  that  they  produce  by  failure  in 
other  departments  of  business,  i.e.,  to  transfer  the 
commodities  or  property,  by  means  of  such  a  sale 
or  title,  at  bottom  or  conservative  figures ;  but,  on 
the  contrary,  the  stock  and  bond  capital  of  the 


92       Railways  in  the  United  States 

corporations  which  had  emerged  from  insolvency 
came  to  the  surface  with  a  larger  capitalization 
than  before  default,  with  no  construction  to 
balance  the  additional  capitalization  account. 
Therefore,  to  enable  the  corporation  to  pay,  in 
addition  to  operating  expenses,  interest  upon  its 
stock,  the  directors  were  under  the  strongest 
incentive,  and  even  necessity,  to  oppress,  at  non- 
competitive points,  the  territory  where  the  rail- 
ways had  a  monopoly  power. 

The  courts  lent  themselves  readily  to  this  new 
device  of  reorganization,  because  it  appeared  to  be 
conservative  of  vested  rights  of  property,  and 
prevented  waste  and  destruction.  The  possible 
influence  of  these  devices  upon  the  future  develop- 
ment of  the  railway  system  in  its  relations  to  the 
state  and  the  people  was  either  not  thought  of  or 
disregarded. 

From  1857  to  i860  many  insolvent  railways 
were  reconstructed  upon  this  plan,  and  at  the 
end  of  this  reconstruction  period  these  railways 
emerged  with  a  considerable  additional  capitaliza- 
tion, representing  simply  accumulated  debt.  In 
1 86 1  the  war  broke  out,  severing  the  lines  running 
north  and  south,  and  in  consequence  of  the  opera- 
tions of  the  government  and  the  increased  and 
feverish  activity  of  the  country  during  the  four 
years  of  the  war,  the  trunk  lines  running  east  and 
west  were  greatly  developed.  It  was  during  this 
period  of  the  war  that  Congress  began,  upon  an 
extensive  scale,   to  charter  the  transcontinental 


Subsidies  93 

lines  of  rail  so  as  to  connect  the  Pacific  coast  with 
the  East. 

GOVERNMENTAL  SUBSIDIES 

The  charter  of  the  Union  Pacific  Railroad  was 
passed  July  i,  1862.  Under  this  charter  the  right 
of  way,  and  a  subsidy  of  land  and  of  Imoney,  were 
granted.  By  the  act  of  July  2,  1864,  the  govern- 
mental subsidy  was  greatly  increased.  Land  to  the 
amount  of  five  alternative  sections  per  mile  on 
each  side  of  the  road  was  granted  to  the  railway. 
The  Secretary  of  the  Treasury  was  required,  upon 
a  certificate  of  the  commissioners,  showing  the 
completion  and  equipment  of  forty  consecutive 
miles  of  railroad  and  telegraph  lines,  to  issue  to  the 
company  bonds  of  the  United  States,  of  $1000 
each,  to  the  amount  of  $16,000  per  mile;  and  as  to 
the  150  miles  westwardly  from  the  eastern  base  of 
the  Rocky  Mountains,  and  150  miles  eastwardly 
from  the  western  base  of  the  Sierra  Nevada  Moun- 
tains, $48,000  per  mile,  and  between  the  two 
mountain  chains  $32,000  per  mile.  The  Central 
Pacific  Railroad,  chartered  under  the  laws  of  the 
State  of  California,  was  taken  care  of  in  the  same 
manner.  A  like  amount  of  land  was  granted  to  it, 
and  a  like  sum  of  money  subsidy.  These  were 
not,  however,  the  only  grants  made  by  Congress 
in  this  act.  The  Hannibal  &  St.  Joseph  Railroad, 
the  Leavenworth,  Pawnee  &  Western  Railroad, 
and  the  Kansas  Pacific  Railroad  became  the  recipi- 


94       Railways  in  the  United  States 

ents  of  sections  of  land  and  subsidies  of  bonds. 
The  Burlington  &  Missouri  Railroad  was  also  the 
recipient  of  a  land  grant. 

The  act  of  1862  gave  to  the  government  of  the 
United  States,  in  return  for  the  subsidy,  a  first 
mortgage  upon  the  railway  property  to  be  created 
by  the  Union  and  Central  Pacific  railroads.  The 
act  of  1864  allowed  the  corporation  to  postpone 
the  government's  lien  by  a  first  mortgage  to  an 
amount  equivalent  to  the  subsidy  given  by  the 
United  States,  and  made  the  lien  of  the  United 
States  for  its  money  subsidy  subordinate  to  that 
of  the  bonds  of  the  companies  issued  under  such 
first  mortgage.  About  $65,000,000  was  thus  given 
to  these  corporations,  in  addition  to  their  valuable 
land  grants,  and  the  lien  of  the  government  post- 
poned to  that  of  another  mortgage,  authorized  to 
be  issued  for  an  equal  amount.  The  Union  Pacific 
Railroad  was  thereupon  constructed  by  an  organiza- 
tion known  as  the  credit  mohilier,  composed,  as  to 
persons  interested  therein,  mainly  of  the  persons 
who  were  instrumental  in  procuring  the  passage  of 
the  act,  and  who  were  the  real  incorporators  of  the 
road.  To  this  corporation  all  the  issues  of  bonds 
and  stock  were  made,  and  it  also  was  the  recipient 
of  the  subsidy  of  the  United  States  after  building 
and  equipping  certain  parts  of  the  road.  It 
proved  an  instrumentality  of  distribution  of  profits 
under  the  cover  of  building  the  road. 

The  grants  of  land  to  the  Union  Pacific  Railroad 
amounted  to  2,000,000  acres;  to  the  Kansas  Pacific, 


Subsidies  95 

6,000,000  acres ;  to  the  Central  Pacific,  as  successor 
of  the  Western  Pacific,  1,100,000  acres;  to  the 
Burlington  &  Missouri  River,  and  to  the  Sioux 
City  &  Pacific,  2,500,000  acres. 

On  July  2,  1864,  the  Northern  Pacific  Railroad 
was  also  incorporated,  and  although  no  money 
subsidy  was  given  to  that  corporation,  it  was  the 
recipient  of  the  largest  land  grant  of  any  of  the 
corporations,  being  entitled  to  receive  under  its 
grant  47,000,000  acres.  By  the  act  of  July  2^], 
1866,  there  was  granted  to  the  Oregon  branch  of 
the  Central  Pacific  3,000,000  acres;  to  the  Oregon 
&  California  Railroad  3,500,000;  to  the  Southern 
Pacific,  6,000,000;  and  to  the  Southern  Pacific 
branch  line  3,500,000  acres.  A  considerable  pro- 
portion of  this  acreage  may  be  saved  to  the  people 
by  the  failure  of  many  of  these  railway  companies 
to  complete  their  lines  within  the  time  specified  by 
the  acts  of  incorporation.  But  these  grants  show 
with  how  liberal  a  hand  the  Congress  of  the  United 
States  disposed  of  the  public  domain  in  favor  of 
these  corporations,  to  aid  them  in  the  construction 
of  their  lines. 

During  the  same  period  of  time  large  grants  of 
land,  owned  by  the  general  government  within 
the  States,  were  made  by  Congress  to  the  States, 
for  the  purpose  of  enabling  such  States  to  make 
large  land  grants  to  the  railways  proposed  to  be 
built  within  their  borders.  As  early  as  1850, 
about  2,500,000  acres  were  granted  to  the  State  of 
Illinois,  and  by  it  granted  to  the  Illinois  Central 


96       Railways  in  the  United  States 

Railroad,  mainly,  to  aid  in  its  construction.  In 
1856  Florida  received  grants  of  land  amounting  to 
about  2,000,000  acres,  which  Florida,  in  turn, 
transferred  in  great  part  to  the  Florida  Railroad 
and  the  Florida  &  Alabama  Railroad.  Arkansas 
was  the  recipient  of  more  than  2,000,000  acres, 
which  it,  in  turn,  transferred  almost  wholly  to 
railways.  Minnesota,  Kansas,  Wisconsin,  Michi- 
gan, and  Iowa  were  all  the  recipients  of  large  grants 
of  land,  from  which  these  States  endowed  railway 
corporations  by  heavy  grants  of  land.  The  terri- 
tory of  the  United  States  appeared  to  the  legislator 
of  that  period  an  inexhaustible  fund  of  land,  and 
millions  of  acres  were  given  away  with  what  now 
appears  to  be  reckless  extravagance.  Long  anter- 
ior to  these  munificences  on  the  part  of  the  general 
government,  some  of  the  States  were  called  upon 
to  aid,  by  actual  grants  of  money,  some  of  the 
railways  which  were  built  within  their  borders. 
The  State  of  New  York  paid  to  the  various  railroad 
corporations  within  its  borders  about  $8,000,000, 
of  which  about  $5,000,000,  granted  to  the  Erie 
Railroad  Company,  was  wholly  lost,  and  granted 
about  $30,000,000  in  municipal  and  county  sub- 
scriptions. 

RIGHT  OF  GOVERNMENT  TO  REGULATE  RAILWAYS 

The  right  of  the  United  States  to  charter  railway 
corporations  was  exercised  under  the  power  given 
to  it  by  the  Constitution  "to  regulate  commerce 


Trunk  Lines  97 

with  foreign  nations  and  among  the  several  States 
and  the  Indian  tribes,  to  estabHsh  post-offices  and 
post-roads,"  and  also  under  the  general  authority 
to  execute  all  powers  vested  by  the  Constitution 
in  the  government  of  the  United  States,  and  like- 
wise under  the  authority  given  to  Congress  to 
provide  for  organizing  the  army. 

The  lines  of  the  Pacific  roads  were  constituted 
post-roads,  as  they  necessarily  carried  on  the  func- 
tion of  interstate  commerce ;  and,  as  they  were  re- 
quired to  carry  the  army  and  army  supplies  of  the 
United  States,  the  establishment  of  these  corpora- 
tions as  United  States  corporations  is  warranted 
under  a  liberal  construction  of  the  Constitu- 
tion, As  these  corporations  have  been  the  recipi- 
ents of  immense  gifts  of  property  from  the  general 
government,  and  as  the  latter  is  in  nowise  restricted 
by  the  prohibition  as  to  impairing  obligation  of 
contracts,  these  beneficiaries  can  not  possibly  make 
any  valid  claim  against  being  subjected  to  regula- 
tion, even  if  such  regulation  be  in  the  nature  of 
afterthoughts  on  the  part  of  the  United  States 
Government  in  the  interest  of  the  people  of  the 
country. 

ORGANIZATION  OF  TRUNK  LINES 

The  system  of  through  lines,  now  known  as 

trunk  lines,  developed  between   1868  and   1872. 

The  Lake  Shore  road  passed  under  the  control  of 

the  Vanderbilt  interest,  and  there  was  no  longer 

7 


98       Railways  in  the  United  States 

any  necessity  to  break  bulk  as  far  as  Toledo.  The 
Michigan  Southern  and  Michigan  Central  likewise 
passed  under  the  same  control,  and  through  lines 
were  established  to  Chicago,  although  the  several 
railways  remained  state  organizations,  and  were 
never  consolidated  as  one  company.  The  Penn- 
sylvania Railroad,  under  the  name  of  the  Pennsyl- 
vania Company,  leased  the  Fort  Wayne  road  in 
June,  1869;  the  Erie  &  Pittsburg,  in  March,  1870; 
the  Columbus,  Chicago  &  IndianapoHs,  in  Febru- 
ary, 1870;  the  Little  Miami  road  from  Columbus 
to  Cincinnati,  Hkewise,  in  February,  1870,  and 
the  Cleveland  &  Pittsburg  road,  in  1871.  These, 
together  with  the  Ohio,  Madison  &  Indianapolis 
Railroad,  and  the  Cincinnati,  Wilmington  & 
Zanesville  Railroad,  gave  to  the  Pennsylvania 
line  practically  two  lines  to  Chicago  and  one 
to  Cincinnati  during  the  same  period.  The 
Baltimore  &  Ohio  road  was  opened  to  the  Ohio 
River  in  1852;  it  leased  the  Central  Ohio  road 
in  1872,  and  then  built  an  independent  line 
to  Chicago  in  1874,  completing  its  through  con- 
nection to  Chicago.  The  Grand  Tnmk  Rail- 
way, by  controlling  and  leasing  other  lines  and 
building  links,  pushed  its  connection  at  about 
the  same  period  through  to  Chicago,  so  that 
there  were  substantially,  from  the  seaboard  to 
Chicago,  five  trunk  lines  vying  with  each  other 
for  business  for  the  West  from  the  time  these 
trunk  lines  pushed  their  connections  on  to  Indian- 
apolis and  St.  Louis. 


Fast  Freight  99 

FAST  FREIGHT  LINES 

Prior  to  completing  the  organization  of  these 
trunk  Hnes,  freight  was  compelled  to  break  bulk 
and  suffer  transshipment  at  the  end  of  each  State 
line,  where  a  new  corporation  took  up  the  traffic 
and  carried  it  beyond.  To  prevent  this  breaking 
of  bulk,  and  to  expedite  the  carriage  of  freight, 
fast  freight  lines  on  separate  capitalizations  were 
organized,  at  first  by  the  managers  of  the  railways 
themselves  owning  or  leasing  their  freight  cars, 
and  then  made  profitable  by  special  arrangements 
with  the  railways  readily  enough  secured,  because 
of  the  fact  that  the  railway  officials  themselves 
were  largely  interested  in  the  fast  freight  lines. 
These  lines  carried  a  considerable  proportion  of 
the  traffic  in  the  period  anterior  to  the  organization 
of  the  trunk  roads.  With  the  completion  of  the 
trunk  line  west  came  also  a  change  in  the  organiza- 
tion of  the  fast  freight  lines.  The  managers  of 
the  railways  became  more  largely  interested  in  the 
success  of  their  trunk  organizations  than  in  the 
subsidiary  lines  that  were  absorbing  a  consider- 
able proportion  of  the  business  of  the  roads.  These 
subsidiary  lines  were  therefore  broken  up,  and 
the  private  corporations  abandoned,  and  each  of 
the  various  railroad  corporations  constituting  the 
trunk  lines,  in  the  proportion  of  the  percentage 
of  traffic  carried  over  their  roads,  as  nearly  as  that 
could  be  ascertained,  contributed  freight  cars  to 
the  formation  of  fast  freight  lines  intended  to 


100     Railways  in  the  United  States 

carry  through  traffic.  Thus  a  great  reduction  in 
the  cost  and  an  increase  in  the  speed  with  which 
goods  were  carried  were  introduced,  and  it  is  now 
no  longer  necessary  to  break  bulk  at  various  points, 
but  goods  can  be  shipped  to  their  terminus  by 
either  of  the  trunk  lines  through  the  instrumental- 
ity of  fast  freight  lines  connected  with  them. 

From  the  fact  that  a  large  portion  of  the  business 
of  the  roads  was  thereupon  done  by  these  fast 
freight  lines,  and  that  these  fast  freight  lines  were 
represented  by  an  independent  organization  or 
staff  of  officers  and  agents,  it  was  supposed  by  the 
public  that  these  lines  were  barnacles  fastened 
upon  the  railway  companies  for  the  purpose  of 
abstracting  from  them,  to  the  advantage  of  the 
managers  and  to  the  detriment  of  the  shareholders, 
a  large  proportion  of  their  traffic. 

Although  this  suspicion  was  well  founded  in  the 
early  history  of  the  fast  freight  lines,  it  ceased 
to  be  true  after  the  organization  of  the  trunk  line 
system.  A  peculiar  result,  however,  arose  from  the 
existence  of  the  fast  freight  lines  as  an  independent 
organization.  In  consequence  of  the  freedom  of 
the  freight  agent  of  the  fast  freight  lines  from  the 
direct  control  of  the  trunk  managers  of  the  rail- 
roads, the  railroad  companies  themselves  found  it 
almost  impossible  to  fix  a  rate  of  freight  which 
would  not,  in  the  intense  desire  to  gain  traffic,  be 
immediately  cut  by  the  fast  freight  lines  doing  busi- 
ness over  their  roads.  Thus,  contemporaneously 
with  agreements  between  the  trunk  line  organiza- 


Panic  of  1873  loi 

tions  to  maintain  rates,  an  active  rivalry  was  kept 
up  in  the  rates  charged  by  the  railroad  corporations 
themselves  and  by  the  fast  freight  lines  which  ran 
over  the  roads  and  belonged  to  them. 

INSOLVENCY  OF  RAILWAYS  IN  THE   PANIC  OF  1 873 

The  pool  agreement,  to  which  reference  will 
presently  be  made,  removed  this  difficulty.  The 
financial  crisis  of  1873,  like  that  of  1857,  caused 
the  insolvency  of  a  large  number  of  railroad  cor- 
porations, and  the  same  proceedings  which  resulted 
in  the  emerging  from  bankruptcy  of  the  railroad 
corporations  that  became  insolvent  in  the  preced- 
ing crisis,  followed  the  insolvency  of  the  railroad 
corporations  in  1873,  by  which  reconstruction 
committees  were  appointed.  The  various  cor- 
porations emerged  after  insolvency  through  this 
process  of  reconstruction  with  capitalizations  of 
funded  debt  and  stock  capital  generally  larger 
than  that  with  which  they  entered  into  this  condi- 
tion of  insolvency,  and  without  any  additional 
road  or  construction  to  account  for  the  increase. 

The  general  depression  of  trade  and  the  failure 
of  crops  succeeding  the  crisis  of  1873,  and  the 
struggle  for  business  between  the  roads,  caused 
them  to  carry  through  traffic  to  the  east  at  very 
low  rates,  for  which  they  sought  to  compensate 
themselves  by  excessive  charges  for  local  traffic. 
This  produced  in  the  western  States  a  very  general 
feeling  of  dissatisfaction  with  railway  methods  and 


102     Railways  in  the  United  States 

railway  management,  and  gave  rise  to  what  is 
known  as  the  Granger  movement. 

RAILROAD    GRANTS    AND    SUBSIDIES    IN   WESTERN 

STATES 

The  western  States  were  more  liberal  than  the 
eastern  States  in  grants  of  land  and  money  to  rail- 
road corporations.  From  i860  to  1870  these 
railroad  corporations  not  only  obtained  large  do- 
nations of  land,  but  counties,  townships,  cities, 
and  villages  desirous  to  become  connected  with  the 
network  of  railways  of  the  United  States,  and  to 
be  brought  into  active  communication  with  the 
movement  of  commerce  throughout  the  country, 
vied  with  each  other  in  debt  accumulation  for  the 
purpose  of  granting  subsidies  to  railways.  A  large 
proportion  of  the  whole  bonded  municipal  in- 
debtedness of  the  United  States  is  due  to  what 
may  be  termed  the  frenzy  on  that  subject.  This 
recklessness  of  debt  creation  for  the  purpose  of 
obtaining  railway  commtinications  has  some  degree 
of  justification  in  far  western  States  which  it  would 
not  have  had  in  any  community  otherwise  situated. 
France,  England,  and  Germany,  and  also  the  sea- 
board and  middle  States  of  the  United  States,  had, 
prior  to  the  existence  of  the  railway,  good  means 
of  intercommimication  by  canals  and  highways. 
But,  in  the  far  western  States,  the  railway  was 
practically  the  only  road.  The  western  counties, 
townships,  and  cities  regarded  the  expenditures  on 


Granger  Movement  103 

railways  as  something  analogous  or  equivalent  to 
expenditures  on  the  ordinary  roads,  and  much  of 
this  debt  creation  was  fostered  by  the  influences 
of  the  railway  corporations  themselves,  and  a 
great  part  of  it  was  doubtless  fraudulently  con- 
tracted through  the  bribing  of  local  officers.  In 
many  cases  the  railways  obtained  subsidies  of 
bonds,  which  they  sold,  and  never  built  the  rail- 
ways. A  large  number  of  litigations,  on  the  ques- 
tion of  the  liability  of  the  public  bodies  granting 
such  subsidy  bonds,  arose  in  the  States  themselves, 
and  many  of  these  were  disposed  of  in  the  United 
States  courts.  The  innocent  holders  of  these  bonds 
sought  to  obtain  judgment  against  counties  or 
towns,  which,  either  failing  to  obtain  the  considera- 
tion for  which  the  bonds  were  issued,  or  discovering 
that  the  bonds  were  fraudulently  issued,  or  from 
the  mere  desire  to  repudiate  the  burden  imposed 
by  the  issue,  sought  to  escape  from  the  payment 
of  the  principal,  or  the  levying  of  a  tax  to  pay  the 
interest.  In  a  great  number  of  these  cases  the 
decision  of  the  Supreme  Court  of  the  United  States 
was  favorable  to  the  bondholders,  and  the  burden 
once  imposed  was  allowed  to  rest,  however  reck- 
lessly or  extravagantly  the  bonds  were  issued,  and 
the  burdens  assumed. 

GRANGER  LEGISLATION 

The  extent  of  this  indebtedness,  however,  added 
fuel  to  the  spread  of  the  Granger  agitation.    The 


104     Railways  in  the  United  States 

heavy  local  taxation  reminded  the  farmer  or  local 
tradesman  of  the  aid  which  he  assisted  in  giving 
and  was  called  upon  to  pay  to  the  railway;  at  the 
same  time,  the  railway,  which  he  supposed  would 
confer  upon  him  a  great  benefit,  was  placing  his 
particular  locality  at  a  disadvantage  by  carrying 
past  his  door  to  more  distant  points  and  to  the 
seaboard  freight  at  rates  very  much  lower  than  he 
was  charged  as  local  rates,  the  reason  being  simply 
that  the  more  distant  point  was  a  competitive 
point,  and  he  was  entirely  at  the  mercy  of  a  single 
railroad  corporation. 

The  western  farmer's  efforts  to  seek  relief  from 
this  condition  of  affairs  would  have  met  with  very- 
considerable  obstruction  had  he  not  been  aided  by 
the  wording  and  language  of  the  constitutions  of 
the  several  States,  which  enabled  him  to  avoid 
any  contract  relation  being  successfully  established 
between  the  State  and  the  railroad  corporation  by 
reason  of  its  original  charter. 

In  the  Dartmouth  College  case  it  was  decided 
by  the  Supreme  Court  of  the  United  States,  in  1 819, 
that,  by  the  legislative  charter  to  a  private  cor- 
poration, a  contract  relation  was  created,  which, 
under  the  clause  prohibiting  the  States  from  impair- 
ing the  obligation  of  contracts,  forbade  the  State 
from  thereafter  passing  laws  substantially  chang- 
ing property  rights  of  such  corporation.  The 
various  States  of  the  Union  took  alarm  at  the 
possible  consequences  of  that  decision,  and,  either 
by  general  laws  or  by  constitutional  amendment, 


Granger  Movement  105 

provided  that  the  legislature  should,  at  all  times, 
be  at  liberty  to  alter,  amend,  or  repeal  the  rights 
or  privileges  conferred  upon  corporations. 

The  State  of  New  York,  after  having  had  for 
many  years  a  provision  to  that  effect  upon  its 
statute  books,  embodied,  in  1846,  such  a  provision 
in  its  constitution ;  and  the  western  States,  on  their 
organization,  followed  substantially  the  provision 
of  the  constitution  of  New  York.  In  obedience 
to  a  strong  public  sentiment,  which  made  itself 
felt  during  187 1-4  throughout  the  western  terri- 
tory, the  legislatures  of  Iowa,  Wisconsin,  Illinois, 
Ohio,  Missouri,  Minnesota,  and  Michigan  passed 
laws,  known  as  Granger  laws,  by  which  railway 
commissioners  were  appointed,  railway  tariffs 
sought  to  be  regulated,  preferences  forbidden,  and 
railways  required  to  carry  for  the  inhabitants  of 
a  locality  freight  at  a  rate  somewhat  proportionate 
to  that  which  they  established  for  through  traffic. 

This  legislation  was  violently  attacked  in  the 
courts  by  the  railways  themselves,  and  the  bond- 
holders of  the  railways  also  called  it  in  question 
on  the  ground  that  such  legislation  impaired  the 
obligation  of  their  contract,  because,  though  it 
left  the  rails  and  the  cars,  it  substantially  took 
away  the  profit  of  operating,  and  thus,  in  disregard 
of  the  constitutional  provision  that  no  private 
property  shall,  without  compensation,  be  taken 
for  public  purposes,  deprived  them  of  property 
without  compensation.  These  cases  came  before 
the  Supreme  Court  of  the  United  States  in  1876, 


io6     Railways  in  the  United  States 

in  the  test  cases  of  Munn  vs.  Illinois,  and  Peake 
vs.  The  Chicago,  Burlington  &  Quincy  Railroad. 
This  controversy  was  disposed  of  by  the  Supreme 
Court  of  the  United  States  adversely  to  the  claim 
of  the  railroads  and  of  the  bondholders,  by  uphold- 
ing the  validity  and  right  of  all  such  State  legis- 
lation. 

Panic  legislation  of  this  character  was,  of  course, 
faulty.  It  proceeded  from  an  insufficient  exami- 
nation of  the  whole  subject.  It  was,  in  fact, 
treating  the  symptom  instead  of  the  disease. 
Notwithstanding  the  complete  vindication,  by 
the  Supreme  Court  of  the  United  States,  of  the 
right  of  the  States  to  enact  legislation  laying  down 
tariff  rates  for  railways,  whether  remunerative  or 
not,  the  majority  of  the  States  which  had  enacted 
such  legislation  receded  from  their  original  posi- 
tion and  modified  their  tariff  rates;  many  abro- 
gated them,  and  contented  themselves  with  the 
establishment  of  railroad  commissions  for  the 
purpose  of  investigation  and  examination  of 
grievances,  and  to  report  thereon  to  the  legisla- 
tures, but  left  on  the  statute  books,  however,  pro- 
hibitions against  preferences,  and  forbade  the 
railways  from  destroying  the  commerce  and  trade 
of  a  locality  by  rival  contests  for  through  traffic. 

RAILROAD  COMMISSIONERS  IN  MASSACHUSETTS 

In  some  of  the  eastern  States,  notably  in  Massa- 
chusetts, a  different  course  was  pursued.    In  that 


Massachusetts'  Experience        107 

State  an  excellent  Board  of  Railroad  Commission- 
ers was  appointed  by  the  act  of  the  legislature  of 
1869,  composed  of  Charles  Francis  Adams,  Jr., 
James  C.  Converse,  and  Edward  Appleton.  The 
duty  of  these  commissioners  was  to  inspect  the  rail- 
way system  of  the  State,  and  to  inquire  into  acci- 
dents and  the  system  of  management,  as  well  as  the 
general  question  of  railroad  development,  and  the 
relation  of  the  community  to  its  railroad  corpora- 
tion. To  entertain  complaints  of  individuals  or 
localities  against  discriminations  or  unjust  treat- 
ment, and  to  report  thereon,  was  also  made  part  of 
their  duties.  Authority  was  also  given  them  to 
hold  public  sessions,  and  to  make  report  of  their 
conclusions  to  the  legislature.  They  had  no  judi- 
cial powers,  but  were  constituted  a  general  board 
for  public  investigation  of  railway  management, 
thus  to  draw  pubHc  attention  to,  and  to  bring  to 
bear  public  opinion  upon,  the  subject.  To  concen- 
trate responsibility,  to  sift  information,  and  to 
advise  the  legislature,  also  appertained  to  their 
functions.  They  were  subsequently  empowered 
to  prescribe  and  enforce,  and  they  did  prescribe 
and  enforce,  a  uniform  system  of  accounts. 

This  board  has  been  in  successful  operation 
since  its  organization ;  and  has  been  of  great  bene- 
fit to  the  commonwealth  which  appointed  it,  and 
of  great  service  as  an  example,  beneficially  imi- 
tated by  other  States,  of  one  of  the  most  conser- 
vative modes  of  dealing  with  railroad  corporations. 

Mr.  Charles  Francis  Adams,  Jr.,  the  chairman 


io8     Railways  in  the  United  States 

of  this  commission,  in  an  argument  before  a  com- 
mittee of  the  Federal  Congress  in  1880,  in  speaking 
of  raikoad  management  and  its  relation  to  the 
public,  says: 

"I  must  ask  you  to  dismiss  all  preconceptions 
from  your  minds,  and  to  fairly  consider  what  is  the 
real  cause  of  the  inequaUty,  the  injustice,  the  dis- 
criminations of  the  existing  railroad  service,  those 
ills  of  the  body  politic  for  which  you  are  now  under- 
taking to  prescribe.  I  will  not  stop  to  dwell  upon 
them  or  to  denounce  them.  It  is  not  necessary  to 
do  so,  for  I  hold  them  to  be  proven  and  their  exist- 
ence notorious.  The  record  is  full  of  evidence 
on  the  subject.  We  all  know,  every  one  knows, 
that  discriminations  in  railroad  treatment  and 
charges  do  exist  between  individuals  and  between 
places.  We  all  know  that  railroad  tariffs  fluctuate 
wildly,  not  only  in  different  years,  but  in  different 
seasons  of  the  same  year.  We  know  that  certain 
large  business  firms,  the  leviathans  of  modem 
trade,  can  and  do  dictate  their  own  terms  between 
rival  corporations,  while  the  small  concern  must 
accept  the  best  terms  it  can  get.  It  is  beyond  dis- 
pute that  business  is  carried  hither  and  thither — 
to  this  point,  away  from  that  point,  and  through 
the  other  point — ^not  because  it  would  naturally  go 
to,  away  from,  or  through  those  points,  but  because 
the  rates  are  made  on  an  artificial  basis  to  serve 
ulterior  ends.  In  regard  to  these  things,  I  consider 
the  existing  system  nearly  as  bad  as  any  system 
can  be.     Studying  its  operations  as  I  have,  long 


Massachusetts'  Experience        109 

and  patiently,  I  am  ready  to  repeat  now  what  I 
have  repeatedly  said  before,  that  the  most  surpris- 
ing thing  about  it  to  me  is,  that  the  business  com- 
munity sustains  itself  under  such  conditions.  The 
first  principles  of  law  governing  common  carriers 
are  habitually  violated.  Special  contracts  cover- 
ing long  periods  of  time  are  made  every  day  with 
heavy  shippers,  under  which  the  common  carrier, 
whose  first  duty  it  is  to  serve  all  equally,  gives  to 
certain  parties  a  practical  control  of  the  markets. 
There  is  thus  neither  equality  nor  system,  law  nor 
equity,  in  the  matter  of  railroad  charges.  A  com- 
plete change  in  this  respect  is  a  condition  precedent 
to  any  just  and  equitable  system  of  railroad  trans- 
portation." 

Coming  as  they  do  from  a  gentleman  of  high 
authority,  who  for  ten  years  held  the  position  of 
Chairman  of  the  Railroad  Commission  of  the  State 
of  Massachusetts,  and  who  at  the  time  when  he 
spoke  had  held  for  one  year  the  position  of  arbi- 
trator, selected  by  the  great  trunk  lines  to  settle 
disputes  and  differences  between  them  as  one  of 
a  court  of  three  arbitrators  voluntarily  constituted, 
these  words  are  more  cogent,  and  are  to  be  assumed 
as  a  more  correct  representation  of  existing  con- 
ditions [in  1884]  resulting  from  the  development 
of  the  railroad  system  of  the  United  States,  than 
any  speech,  either  of  granger  suffering  from  his 
particular  grievance,  or  of  railway  president 
anxious  to  retain  his  hold  upon  a  monopoly 
interest. 


no    Railways  in  the  United  States 

The  attempt  to  enforce  upon  the  railways  of  the 
State  of  Massachusetts  the  adoption  of  a  system 
of  accounts  prepared  by  a  set  of  "theorists,"  was 
vehemently  opposed  by  the  railway  corporations, 
who  called  it  an  infringement  of  their  chartered 
rights,  which  would  prove  a  mere  appliance  for 
exacting  blackmail,  and  expose  details  of  manage- 
ment concerning  which  the  public  had  no  interest. 
The  commissioners,  on  the  other  hand,  insisted 
that  the  community  had  an  interest  in  its  railroad 
lines,  and  that  an  administration  which  was  a  mere 
hot-bed  of  abuses  should  be  thereafter  managed 
in  full  public  view.  To  the  new  system  of  accounts 
prescribed,  the  railways  quickly  accommodated 
themselves,  and,  much  to  their  surprise,  they 
experienced  no  evil  result  from  rendering  accounts 
intelHgible  to  pubHc  bodies  and  to  the  public  at 
large,  but  rather  found  great  benefit  to  flow  there- 
from. 

The  instances  of  the  failure  of  the  Eastern  Rail- 
road Company,  the  sudden  collapse  of  the  New 
Jersey  Central  and  of  the  Reading  railroads,  show 
how  utterly  unable  was  the  public  to  form,  from 
the  published  accounts  in  annual  reports,  any 
adequate  conception  of  the  condition  of  railroad 
property.  In  each  of  these  cases  the  annual  report 
preceding  the  insolvency  claimed  the  roads  to 
be  financially  in  flourishing  condition.  Against 
such  abuses  as  these,  the  system  of  uniform  ac- 
counts and  thorough  investigation  seems  to  be  a 
specific.     On  this  subject  and  its  success,   the 


Massachusetts'  Experience        iii 

Massachusetts  commissioners,  in  their  report  for 
1879,  draw  a  very  correct  Hne  of  distinction.  In 
speaking  of  the  spirit  which  called  forth  an  inves- 
tigating board  such  as  the  Massachusetts  commis- 
sioners, and  that  which  prescribed  a  hard  and  fast 
tariff  of  rates  for  railway  companies  such  as 
granger  legislation  attempted,  they  say : 

"After  a  careful  investigation,  which  extended 
through  a  year,  and  the  conclusions  of  which  are 
to  be  found  in  its  earlier  reports,  this  board  wholly 
rejected  the  idea  of  attempting  to  regulate  rail- 
roads in  this  country,  at  least  through  direct 
legislative  intervention.  It  was  said  that  such 
an  attempt  would  result  only  in  failure,  or  perhaps 
generate  new  and  dangerous  abuses  of  its  own. 
The  board,  on  the  contrary,  maintained  that  every 
desired  result  or  needed  reform  could  be  secured 
by  simply  developing  in  the  public  mind  the  idea 
of  corporate  responsibility,  and  supplying  the 
necessary  machinery  to  act  directly  upon  it.  To 
bring  this  about,  it  was  necessary  to  force  the 
corporate  proceedings  into  the  full  light  of  pub- 
licity, and  to  compel  those  responsible  for  railroad 
management,  whenever  an  abuse  was  alleged,  to 
submit  to  investigation,  and  to  try  to  show  that 
the  abuse  did  not  exist.  Failing  to  do  this,  their 
only  alternative  was  to  discontinue  its  practice 
or  to  persist  in  it  in  open  defiance  of  public  opinion. 
This  is  the  theory  of  railroad  regiilation  now  known 
as  the  commissioners'  system,  in  contradistinction 
to  the  granger  system.    The  public  supervision  of 


112     Railways  in  the  United  States 

the  accounts  of  the  railroad  corporations  is  an 
essential  feature  in  the  successful  development  of 
this  theory.  If  that  can  be  established,  it  will 
certainly  lead  to  the  gradual  abandonment  of  the 
granger  system  in  favor  of  a  supervisory  system. 
The  commissioners  believe  that  it  has  been  estab- 
lished in  the  practical  experience  of  the  Massa- 
chusetts railroads  in  the  last  two  years,  and  they 
further  beHeve  and  say  that  the  system  works 
well." — (Massachusetts  Railroad  Commissioner's 
Report,  1879,  pp.  29,  30.) 

NEW  York's  efforts  to  curb  the  railway 

POWER 

In  New  York  State  the  Board  of  Trade  and 
Transportation,  a  body  originally  organized  under 
the  title  of  "The  Cheap  Transportation  Associa- 
tion," set  itself  the  task,  in  1873,  of  bringing  the 
railway  corporations  of  the  State  of  New  York 
to  public  amenabiHty.  From  1850  down  to  that 
period,  no  serious  attempt  had  been  made  in  that 
State  to  create  in  railroad  management  any  sense 
of  pubHc  responsibiUty.  The  reports  which  the 
various  railroad  corporations  of  the  State  were 
required  to  file  with  the  State  Surveyor  and 
Engineer,  were  almost  wholly  meaningless.  No  bal- 
ance sheet  accompanied  the  reports,  and  the  rail- 
road corporations,  in  conforming  with  the  letter 
of  the  law,  vied  with  each  other  in  giving  as  Httle 
information  as  possible.     The  State  Surveyor  had 


New  York's  Experience  113 

neither  power  nor  desire  to  make  any  independent 
investigation.  He  simply  published  from  year  to 
year  such  information  as  the  railway  corporations 
saw  fit  to  give  him.  No  penalty,  which  had  the 
slightest  deterring  influence,  was  imposed  for 
giving  insufficient  or  even  false  information.  The 
State  law  forbade  parallel  lines  from  being  leased 
to  each  other.  Nevertheless,  railroad  corporations, 
by  purchasing  the  majority  of  the  stock  of  the 
parallel  lines,  ran  them  in  the  interest  of  their 
main  railroads. 

In  1868  a  consolidation  took  place  between  the 
New  York  Central  and  the  Hudson  River  railroads 
by  which  they  subsequently  became  one  line.  On 
the  consummation  of  the  consolidation  new  stock 
was  issued,  substantially  doubling  the  capital,  or, 
in  other  words,  watering  the  stock,  of  both  lines. 
This  watering  of  stock  was  promptly  legalized  by 
the  legislature  of  the  following  year,  which  con- 
ferred authority  for  exchanging  the  certificates  into 
shares  of  stock.  Thus,  these  roads  in  their  new 
capitalization  neutralized  all  the  advantages  they 
had  of  easier  gradient  and  no  mountains  to  pass 
over,  which  had  given  to  New  York  State  cheaper 
railway  construction  than  to  Pennsylvania  and 
Maryland.  Although  during  the  summer  months, 
when  canal  competition  is  active,  or  under  circum- 
stances when  the  competition  for  through  traffic 
with  other  roads  creates  a  strife,  capitalization  is 
of  little  or  no  consequence,  yet,  on  the  local  traffic, 
capitalization  produces  the  result  of  compelling 


114     Railways  in  the  United  States 

the  local  shipper  to  pay  such  a  rate  as  to  make  it 
possible  for  the  proprietors  of  the  road  to  pay- 
dividends  on  their  stock.  By  the  general  railroad 
laws  of  the  State  of  New  York  it  is  provided,  that 
when  the  dividends  of  any  railroad  corporation 
shall  reach  lo  per  cent.,  the  State  can  declare  how 
the  surplus  above  the  lo  per  cent,  shall  be  applied. 
This  provision,  however,  was  made  quite  nugatory 
by  the  trick  of  stock  watering.  It  is  clear,  if  with 
each  increased  valuation  of  the  road  the  pro- 
prietors can  declare  stock  dividends  not  repre- 
senting construction  account,  that  a  dividend  of 
10  per  cent,  on  stock  will  never  be  declared, 
although  in  point  of  fact  the  railway  may  be 
earning  20  or  30  per  cent,  upon  its  actual  cost  of 
construction. 

This  bold  stroke  of  financial  policy,  which  laid 
the  foundation  for  the  colossal  wealth  of  the  Van- 
derbilts,  drew  attention  to  this  evil,  and  gave  to 
the  Cheap  Transportation  Association  (subse- 
quently the  Board  of  Trade  and  Transportation) 
an  excellent  ground  for  agitating  the  subject  of 
railroad  abuses.  To  this  agitation  considerable 
vigor  was  imparted  about  this  time  by  the  dis- 
crimination then  practised  against  the  interest  of 
the  commerce  of  New  York,  whereby  the  rail- 
road corporations  chartered  by  the  State  of  New 
York  made  more  favorable  rates  to  Baltimore, 
Philadelphia,  and  Boston  in  their  charges,  for  all 
west-bound  as  well  as  east-bound  freight,  than 
to  New  York, 


New  York's  Experience  115 

One  of  the  periodical  treaties  of  peace  after  a 
railroad  war  of  great  intensity  gave  to  Philadelphia 
an  advantage  of  two  cents  a  hundred  on  freight 
rates  from  the  West,  to  Baltimore  four  cents  a 
hundred,  and  to  Boston  the  same  rate  as  was  given 
to  New  York,  on  the  lowest  class  of  freight.  On 
the  western-bound  freight  the  discrimination 
against  New  York  in  favor  of  Philadelphia  and 
Baltimore  amounted  to  from  seven  to  ten  cents 
a  hundred  on  the  different  classifications  of 
freight.  This  difference  in  rates  was  made  on  the 
theory  that  Philadelphia  and  Baltimore  were 
relatively  nearer  to  the  western  centres  than  New 
York.  Boston,  however,  which  was  farther  away 
by  two  hundred  miles  than  New  York,  was  given 
the  same  rate.  On  east-bound  freight  the  theory 
upon  which  the  discriminations  were  made  against 
New  York  was,  that  the  ship  charters  from  and  to 
New  York  were  lower  as  compared  with  the  other 
seaboard  cities.  This,  however,  on  examination 
proved  untrue.  Upon  this  state  of  affairs  being 
made  apparent,  the  Chamber  of  Commerce,  as 
well  as  the  Board  of  Trade  and  Transportation, 
took  up  the  question  of  railroad  discriminations, 
and  in  a  report  published  by  the  Chamber  of 
Commerce  in  1878,  it  appeared  that  during  a  con- 
siderable part  of  January  of  that  year  the  rates  over 
the  New  York  Central,  the  Erie,  and  the  Grand 
Trunk  roads  were,  from  Boston  to  Chicago,  from 
thirty-five  to  forty  cents  a  hundred.  From  Boston 
to  Chicago  salt  was  shipped  at  fifteen  cents,  while 


ii6     Railways  in  the  United  States 

forty-five  cents  was  the  lowest  rate  from  New 
York.  From  Philadelphia  to  Chicago  the  rates 
during  the  same  dates  were  made  as  low  as  seventy 
cents  on  first-class  goods,  while  during  the  same 
period  the  rates  were  maintained  at  a  dollar  from 
New  York  to  Chicago.  The  lower  classes  were 
relatively  as  high.  The  committee  reported  that 
goods  stored  in  New  York  were  shipped  to  Boston 
to  be  forwarded  to  the  West  through  New  York 
over  the  Erie  road,  or  via  the  Boston  &  Albany 
over  the  New  York  Central  road,  at  a  saving  of 
almost  50  per  cent,  over  direct  shipments  from 
New  York.  Through  freights  from  Liverpool  to 
Chicago,  fourth  class,  were  as  low  as  twenty  to 
twenty-five  shillings  per  ton,  while  the  rates 
remained  from  Liverpool  to  New  York  forty  to 
forty-five  cents  per  hundred  pounds,  equivalent 
to  about  thirty  shillings  per  ton.  These  facts 
were  brought  to  the  attention  of  the  railway  presi- 
dents, and  their  aid  was  solicited  to  remove  the 
discriminations  against  New  York.  They  made 
a  contemptuous  answer,  Mr.  Vanderbilt  more 
especially  drawing  attention  to  the  facilities 
offered  by  other  cities  to  their  railroad  corpora- 
tions, and  claiming  that  the  New  York  Central 
had  not  the  same  facilities  offered  to  it  by  the 
municipal  government,  and  that  the  merchants 
should  use  their  influence  upon  the  municipality 
to  extend  the  facilities  afforded  the  railway  cor- 
porations in  like  manner  as  facilities  were  extended 
to  the  Pennsylvania  Railroad  by  Philadelphia,  and 


New  York's  Experience  117 

to  the  Baltimore  &  Ohio  Railroad  by  Baltimore. 
A  commissioners'  bill,  which  had  been  drawn, 
was,  for  four  successive  years,  submitted  to  the 
legislative  committees  of  the  State  of  New  York 
for  action,  but  in  almost  every  instance  it  had 
either  been  reported  upon  adversely,  or,  if  reported 
favorably,  had,  through  the  influence  of  the  rail- 
way companies,  been  smothered  in  one  or  the 
other  of  the  Houses. 

Finding  redress  impossible  through  the  volun- 
tary action  of  the  corporations  themselves,  the 
Chamber  of  Commerce,  through  its  committee  on 
transportation,  therefore  determined  to  lend  its 
aid  to  procure  the  estabhshment  of  a  railroad 
commission  for  the  State  of  New  York. 

Besides  the  grievances  before  referred  to, 
another,  of  an  extremely  burdensome  character, 
which  affected  the  people  of  the  State  at  large,  also 
existed  at  that  time.  Between  1875  and  1877  the 
great  railway  corporations  entered  into  an  active 
railroad  war,  and  in  consequence  of  the  resulting 
freight  rates,  cereal  products  and  flour  were  fre- 
quently carried  by  the  companies  at  a  loss  from 
the  West  to  the  seaboard.  That  loss  might  pos- 
sibly have  financially  ruined  the  railway  corpora- 
tions of  the  State  had  a  corresponding  reduction 
been  made  in  their  local  tariff;  but  to  recoup  this 
loss  on  through  rates,  they  maintained,  as  to  the 
local  shipper,  rates  which  under  such  circumstances 
became  extortionate;  thus  making  the  people  of 
the  State  bear  the  burden,  through  the  exactions 


ii8     Railways  in  the  United  States 

of  the  local  tariff,  of  the  trunk  line  war,  in  the  same 
manner  as  though  the  State  were  at  war  and  had 
levied  a  tax  upon  its  inhabitants  to  maintain  it. 
This  discrepancy  between  through  and  local  tariffs 
led  to  the  practical  abandonment  of  milling  at  the 
great  flouring  centres  of  the  State  of  New  York, 
such  as  Rochester  and  Black  Rock.  It  was  impos- 
sible for  them  to  maintain  competition  against  the 
Minneapolis  miller  who  had  his  cereals  produced 
at  his  door  and  had  the  flour  carried  to  New  York 
at  twenty  cents  a  hundred,  when  they  were  com- 
pelled to  pay  more  than  that  for  the  mere  carriage 
of  the  wheat  to  their  mills,  and  a  higher  absolute 
rate  for  the  carriage  of  the  product  of  their  mills 
to  the  seaboard. 

The  grazing  and  cattle  interest  of  the  western 
part  of  the  State  suffered  in  consequence  of  the 
low  rates  of  carriage  from  the  western  country  of 
cattle  on  the  hoof,  and  a  destruction  of  interests 
took  place  to  such  an  extent  that  grazing  and 
cattle-raising  became  a  non-remunerative  occupa- 
tion solely  by  reason  of  discriminating  freight 
rates  against  the  western  part  of  the  State.  These 
subjects  were  taken  up  and  agitated  by  the  State 
Grange  organizations  and  the  Farmers'  Alliance, 
who  joined  hands  with  the  Chamber  of  Commerce 
and  Board  of  Trade  and  Transportation  in  insisting 
upon  some  remedial  measure  against  such  discrimi- 
nations. 

Another  abuse,  which,  however,  was  carried  to 
its  extreme  limit  by  the  New  York  Central  Rail-» 


New  York's  Experience  119 

road  Company,  gave  additional  ground  for  com- 
plaint. This  abuse  was  the  entire  abandonment 
of  any  fixed  schedule  of  tariff  rates  for  local  traffic. 
There  was  a  tariff  of  rates  which  existed  only  for 
the  unwary  shipper  who  made  his  shipment  on 
the  assumption  that  all  shippers  were  treated  alike, 
and  he  was  punished  for  his  want  of  knowledge 
by  being  compelled  to  pay  extortionate  rates.  A 
special  rate,  which  was  entirely  personal  to  the 
particular  shipper,  was  made  almost  invariably, 
on  application,  by  the  freight  manager  of  the  New 
York  Central  Railroad,  exercising  his  discretion 
to  make  it  as  he  saw  fit.  At  the  time  when  a 
legislative  investigation  was  ordered,  there  were 
in  existence  on  the  line  of  the  New  York  Central 
Railroad  upward  of  6000  different  contracts  vary- 
ing in  the  most  arbitrary  manner  the  published 
schedule  rate  for  the  carriage  of  local  freights. 
Underlying  these  special  rates  there  was  neither 
principle  based  upon  car-loads  or  train-loads  as 
contradistinguished  from  single  packages,  nor 
upon  extent  of  business  or  readiness  of  handling, 
nor  any  other  well-known  basis  of  railway  manage- 
ment. They  were  granted  as  the  caprice,  the 
whim,  or  the  interest  of  the  railway  freight  agent 
dictated.  The  charge  that  such  discriminations 
and  special  rates  existed,  when  made  to  the  legis- 
lative committee  appointed  in  1879,  was  at  first 
flatly  denied,  but  within  the  first  few  days  of  the 
investigation  which  followed,  and  to  which  reference 
willpresently  be  made,  it  wasoverwhelmingly  proved. 


120     Railways  in  the  United  States 

THE  RAILWAY  INVESTIGATION  IN  NEW  YORK  IN  1 879 

Public  opinion  had  become  so  agitated  upon  the 
subject  that  at  last  all  the  opposing  influences  of 
the  railways  in  the  Assembly  were  overcome.  An 
investigation  of  the  railway  system  of  the  State  of 
New  York  was  ordered  by  the  legislature  of  1879, 
and  a  committee  appointed  to  investigate  the 
abuses  alleged  to  exist  in  the  management  of  the 
railroads  of  that  State.  This  committee  was  com- 
posed of  A.  Barton  Hepburn  as  chairman,  Henry 
L.  Duguid,  James  Low,  William  L.  Noyes,  James 
W.  Wadsworth,  Charles  S.  Baker,  James  W. 
Husted,  and  Thomas  F.  Grady.  The  committee 
invited  the  Chamber  of  Commerce  and  Board  of 
Trade  and  Transportation,  which  had  made  the 
charges  upon  the  basis  of  which  the  committee  was 
acting,  to  appoint  coimsel  to  conduct  the  exami- 
nation, and  stated  that  the  committee  would  give 
to  such  counsel  standing  before  it  by  substantially 
adopting  him  as  the  counsel  of  the  committee. 
Under  this  invitation  the  Chamber  of  Commerce 
and  the  Board  of  Trade  and  Transportation 
appointed  the  writer  hereof  as  its  counsel  to  con- 
duct the  investigation,  and  then  during  a  period  of 
eight  months  the  investigation  proceeded  in  the  tak- 
ing of  testimony  and  the  preparation  of  its  report. 

EFFORTS  TO  MAINTAIN   RATES  UNDER    FINK 
COMMISSIONERSHIP 

Prior  to  the  appointment  of  this  committee,  a 


Hepburn  Investigation  121 

great  change  had  taken  place  in  the  management  of 
the  great  trunk  Hnes  in  their  relation  to  the  public. 
Mr.  Albert  Fink — who  had  been  the  vice-president 
of  the  Louisville  &  Nashville  Railroad,  and  who 
was  commissioner  or  chairman  of  the  committee  of 
the  Southern  Railway  and  Steamship  Association, 
which  was  comprised  of  twenty-five  railroads,  and 
who  by  a  pooling  arrangement  of  freights  in  the 
organization  of  that  association  had  substantially 
stopped  railroad  wars  and  competition  among 
them,  and  the  success  of  whose  management  had 
drawn  attention  to  his  executive  ability — ^was  in- 
vited by  the  railroad  magnates  of  the  East  to  or- 
ganize, upon  the  plan  of  the  Southern  Railway  and 
Steamship  Association,  an  organization  to  keep  the 
peace  and  maintain  rates  for  the  trunk  lines  cen- 
tering at  New  York,  Boston,  Philadelphia,  and 
Baltimore.  Down  to  that  period  of  time  every 
attempt  to  create  a  "joint  purse,"  as  it  is  called 
in  England,  or  a  "pool,"  as  it  is  termed  in  the 
United  States,  by  which,  to  prevent  railway  wars, 
the  proceeds  of  freight  charges  were  divided 
between  the  railway  companies,  had  proved  fruit- 
less. Scarcely  was  the  ink  dry  on  the  contract 
made  between  the  railway  presidents  before  each 
particular  railway  company  attempted,  in  one 
way  or  another,  to  break  away  from  the  contract 
thus  made.  So  little  under  control  were  some  of 
the  freight  agents,  that  even  if  the  railway  presi- 
dents desired  to  maintain  the  contract  in  its 
integrity,  they  found  it  impossible  to  control  the 


122     Railways  in  the  United  States 

various  freight  lines  doing  business  over  their  own 
roads,  and  the  contracts  were  broken  almost  as 
soon  as  made.  Thereupon,  in  June,  1877,  Mr. 
Fink  was  appointed  commissioner  of  the  four 
trunk  lines,  the  Baltimore  &  Ohio,  the  Pennsyl- 
vania, the  Erie,  and  the  New  York  Central  & 
Hudson  River  railroads.  In  December,  1878,  he 
was  further  appointed  commissioner  of  the  com- 
bined trunk  lines  of  the  western  roads.  A  contract 
was  made  by  which,  in  addition  to  the  agreement 
as  to  regular  tariffs,  each  railroad  corporation 
agreed  to  accept  a  certain  percentage  of  all  the 
freight  that  was  offered,  and  to  send  to  the  other 
lines  which  had  a  deficiency  whatever  surplus  was 
offered  to  it,  in  consideration  of  which  it  was  like- 
wise to  receive  from  the  other  line  its  own  defi- 
ciency. Substantially  it  was  then  agreed  as  to 
west-bound  freight,  and  subsequently  as  to  east- 
bound  freight,  that  the  roads  were  to  be  operated 
with  reference  to  traffic  as  though  they  were  one 
corporation,  and  Mr.  Fink,  as  a  commissioner, 
was  to  see  to  it  that  this  arrangement  was  faith- 
fully carried  out.  He  had  supplied  him  a  large 
staff  of  clerks  to  make  these  equalizations  from 
time  to  time.  A  further  development  of  this 
principle  was  the  appointment  of  arbitrators,  three 
in  number,  to  determine  disputed  questions.  The 
system  has  certainly  resulted,  first,  in  maintaining 
rates,  and  secondly,  in  stopping  railroad  wars 
between  the  contracting  parties.  A  railroad  war, 
while,  on  the  one  hand,  reducing  rates,  produces, 


Hepburn  Committee  Report       123 

on  the  other  hand,  great  demoralization  in  com- 
mercial transactions  by  the  element  of  uncertainty 
caused  by  the  absence  of  a  certain  rate,  vastly 
more  expensive  in  its  ultimate  results  than  the 
higher  rate  for  freight. 

THE  HEPBURN   COMMITTEE  REPORT 

The  all  but  unanimous  report  of  the  investi- 
gating committee  appointed  in  1879  was  made 
after  an  exhaustive  inquiry,  contained  in  five 
closely  printed  volumes  of  testimony.  This  com- 
mittee, in  summing  up  the  condition  of  railroad 
management  as  they  found  it  in  the  State  of  New 
York,  passed  in  review  the  various  abuses  which 
had  grown  up  under  the  management  of  these 
great  highways  by  private  corporations  without 
responsibihty  to  the  State.  They  referred  to  the 
evil  of  the  drawing-room  or  sleeping-car  companies, 
which,  by  their  contracts  with  the  railroad  com- 
panies, created  a  special  interest  that  diminished 
the  return  of  the  shareholders  of  the  railroad 
companies.  They  spoke  of  the  fast  freight  Hnes 
and  express  companies  as  then  conducted  as  free 
from  evil.  They  condemned  the  methods  by 
which  the  stock-yards  at  the  terminal  points  of 
the  railways  were  let  out  to  individuals,  and 
spoke  of  this  as  an  instrumentality  usually  at- 
tended with  additional  taxes  upon  transportation. 
They  considered  the  suborganizations  of  railways 
in  the  way  of  coal  companies  and  elevator  asso- 
ciations, which  they  designated  as  barnacles  upon 


124     Railways  in  the  United  States 

commerce,  as  organized  for  the  purpose  of  tolling 
the  commerce  of  that  port  (Buffalo)  to  the  greatest 
possible  extent.  In  alluding  to  watered  stock, 
the  committee  referred  to  the  fact  that  it  was 
proved  before  them  that  $40,000,000  was  probably 
the  whole  value  of  the  property  and  equipment  of 
the  Erie  Railway  Company,  and  that  $25,000,000 
more  would  cover  all  the  additional  value  of  the 
road,  as  represented  by  stock  and  bonds  and 
interests  in  other  corporations,  while  it  was  capi- 
talized at  about  $155,000,000;  that  its  construc- 
tion account  covered  in  1873  an  item  of  "legal 
expenses"  of  $891,000;  and  that  the  watering  of 
the  stock  of  the  Erie  Railway,  as  well  as  its  bonds, 
was  estimated  by  them  to  be  not  less  than  $70,- 
000,000.  They  proceeded  to  examine  the  accounts 
of  the  New  York  Central  Railway.  They  found 
that  in  1853  the  stocks  and  bonds  of  the  roads 
which  at  that  time  formed  the  various  links  of  the 
chain  of  consolidation  thus  effected,  amounted  to 
a  total  of  $23,000,000,  and  that  at  the  time  when 
the  first  consolidation  was  effected,  premiums,  or, 
in  other  words,  water,  to  the  extent  of  almost 
$9,000,000,  were  given  to  the  stockholders  and 
shareholders  of  these  various  roads.  From  1868 
to  1870,  by  the  consoHdation  of  the  New  York 
Central  and  the  Hudson  River  railroads,  over 
$44,000,000  was  added  to  the  combined  capital 
of  both  these  roads,  by  stock  dividends  of  80  per 
cent,  on  the  New  York  Central  road  in  1868,  and 
85  per  cent,  on  the  Hudson  River  road. 


Hepburn  Committee  Report       125 

The  committee  passed  in  review  local  questions, 
which  it  is  not  necessary  to  enter  into  here,  on  the 
subject  of  the  terminal  facilities  and  the  injustice 
done  by  the  discriminations  against  New  York 
by  the  arrangement  of  discriminating  rates,  and 
then  they  touched  upon  the  abuse  fully  developed 
before  them,  connected  with  the  Standard  Oil 
Company. 

It  appeared  by  the  testimony  submitted,  that 
on  Jan.  8, 1872,  the  Central,  Erie,  Lake  Shore,  and 
Pennsylvania  roads  made  an  agreement  with  the 
South  Improvement  Company,  a  Pennsylvania 
corporation,  giving  to  the  improvement  company, 
on  shipment  of  oil  to  different  points,  rebates 
ranging  from  forty  cents  to  $3.07  a  barrel.  The 
agreement  provided  that  its  object  was  to  main- 
tain the  business  of  the  South  Improvement  Com- 
pany against  loss  or  injury  by  competition,  and 
that  the  roads  would  lower  or  raise  the  gross  rate 
of  transportation  over  their  respective  railways 
and  connections,  to  such  an  extent  as  might  be 
necessary  to  overcome  all  competition. 

When  the  agreement  became  public,  the  legis- 
lature of  Pennsylvania  was  compelled  by  public 
opinion  to  vacate  the  charter  of  the  corporation. 
A  more  ingenious  and  secret  agreement,  however, 
was  subsequently  made  with  the  Standard  Oil 
Company,  by  the  railroad  corporations,  securing 
to  that  corporation  the  objects  which  were  in- 
tended to  be  secured  to  the  South  Improvement 
Company.    This  company,  originally  composed  of 


126      Railways  in  the  United  States 

a  few  enterprising  oil  men  of  the  western  States, 
gradually  absorbed  into  its  management  the  Stan- 
dard Oil  Company  of  Cleveland,  the  Standard 
Oil  Company  of  Pittsburg,  the  Acme  Oil  Com- 
pany of  New  York,  the  Imperial  Oil  Company  of 
Oil  City,  the  Atlantic  Refining  Company  of  Phila- 
delphia, Charles  Pratt  &  Co.  of  New  York,  the 
Devoe  Manufacturing  Company  of  New  York,  J. 
A.  Bostwick  &  Co.,  and  Messrs.  Rockefeller,  Day, 
Flagler,  Warden,  Frew  &  Co.,  and  others. 

This  combination  against  the  remainder  of  the 
trade,  now  banded  together  under  the  name  of 
the  Standard  Oil  Company,  was  characterized  by 
the  committee  as  a  flagrant  violation  of  every  prin- 
ciple of  railroad  economy  and  natural  justice. 
It  resulted  in  driving  out  of  business  nearly  all 
competitors,  and  enabled  the  Standard  Oil  Com- 
pany to  purchase,  at  such  rates  as  they  saw  fit,  the 
refineries  distributed  over  the  United  States,  which 
they  desired  to  control  either  for  the  purposes  of 
manufacturing  or  to  dismantle.  This  threw  the 
production,  distribution,  and  refining  of  oil  into 
the  hands  of  a  single  corporation,  to  the  extent, 
estimated  at  that  time,  of  95  per  cent,  of  the  whole 
product.  In  this  regard  the  committee  said,  that 
from  January  to  October,  1879,  the  total  ship- 
ments from  the  oil  regions  to  all  points  were 
12,900,240  barrels,  and  that  all  shipments  to  the 
seaboard  would  have  easily  borne  one  dollar  more 
per  barrel  than  they  did  (the  rate  then  being 
about  twenty-five  cents  a  barrel) ;  that,  tested  by 


Hepburn  Committee  Report       127 

the  charge  which  the  roads  imposed  upon  every 
other  commodity,  it  should  have  borne  that  much 
more ;  and  that  all  the  trunk  lines  had  grown  into 
such  relations  with  this  oil  company  that  they 
were  forced  to  forego  all  these  millions  they  might 
have  earned,  and  compelled  to  look  to  the  other 
products  of  the  country  for  their  revenues;  thus 
burying  their  own  interest  in  the  interest  of  the 
Standard  Oil  Company,  and  joining  in  this  war  of 
rates  to  protect  the  latter  against  injury  by  com- 
petition. 

The  attention  of  the  committee  had  been  drawn 
to  the  evils  connected  with  the  proxy  system,  by 
which  railways  were  captured  by  the  mere  pur- 
chase of  voting  power  from  persons,  mainly 
bankers,  in  whose  names  large  amounts  of  stock 
were  registered,  but  which  had  been  sold  and  dis- 
tributed to  their  customers,  and  for  prudential 
reasons  were  left  standing  in  their  names  on  the 
stock  books  of  the  companies.  This  situation  gave 
to  such  persons  a  large  voting  power  in  the  railway 
without  a  substantial  interest  or  stake  in  the  result 
of  the  vote.  To  persons  who  desired  to  capture  the 
road,  it  was  a  strong  temptation  to  purchase  such 
voting  power;  and,  to  persons  who  had  no  perma- 
nent interest  in  the  road,  it  was  a  corresponding 
temptation  to  sell  the  power,  the  evil  effects  of  the 
sale  of  which  they  were  not  personally  called  upon 
to  bear.  The  committee,  therefore,  recommended 
the  passage  of  a  bill  to  remedy  this  abuse. 

The  committee  likewise  condemned  the  system 


128     Railways  in  the  United  States 

of  reports  to  the  State  Engineer  and  Surveyor,  and 
then  passed  under  review  the  system  of  special 
rates,  which  was  founded  upon  no  other  basis  than 
the  arbitrary  will  of  the  freight  agent  in  giving 
individual  shippers,  located  in  the  same  town, 
rates  var^dng  as  much  as  thirty  cents  a  hundred. 
The  committee  investigated  the  theory  that  had 
been  advanced  by  all  the  railroad  experts  of 
"charging  a  traffic  what  it  will  bear."  Of  this  they 
said,  that,  "  as  to  an  increase  of  from  fifteen  cents  in 
August  to  forty  cents  in  November  on  grain,  the 
rate  was  raised  simply  because  the  condition  of  the 
market  warranted  it,  and  the  product  could  bear 
it.  It  would  be  difficult  to  make  a  criticism  upon 
that  raise  which  public  judgment  would  sustain, 
but  we  are  distinctly  told  that  public  interest 
plays  an  insignificant  r61e  in  the  theatre  of  rail- 
road management.  It  is  at  best  but  a  service 
waiting  upon  the  interest  of  the  stockholders. 
The  wrong  consists  in  exercising  a  censorship  over 
the  business  affairs  of  the  community;  secretly, 
arbitrarily,  and  unequally  varying  rates,  building 
up  this,  developing  that;  not  only  performing  the 
proper  functions  of  transportation,  but  taking  into 
consideration  the  probable  or  possible  profit  of  a 
shipment,  and  adjusting  their  rates  accordingly. 
If  the  shipper  is  likely  to  make  a  large  profit,  they 
compel  him  to  divide ;  if  the  margin  is  a  close  one, 
they  determine  whether  the  shipment  shall  be 
made  or  not,  whether  it  shall  result  in  a  profit  or 
loss.     Thus,  under  this  system  of  management, 


Hepburn  Committee  Report       129 

and  this  method  of  giving  rates,  is  every  merchant, 
every  manufacturer,  every  shipper,  and,  through 
them,  every  individual  along  the  5500  miles  of 
railroad  in  this  State,  with  its  five  hundred  millions 
of  capital,  measurably  in  the  power  of  these  cor- 
porations. Conciliate  their  good  will,  court  their 
favor,  and  favorable  rates  will  follow;  incur  their 
hostility,  and  the  margin  of  their  displeasure  may 
be  read  on  your  freight  bills." 

The  committee  spoke  of  the  enormous  political 
influence  wielded  by  corporations  then  having  in 
their  employ  upward  of  30,000  voters.  They  spoke 
also  of  the  contemptuous  disregard  exhibited  by 
the  railroad  corporations  of  the  State  to  the  milling 
interest,  in  April,  1879,  when  they  answered  a 
temperate  statement  of  grievances  by  saying, 
that  "the  first  condition  of  having  them  listened 
to  was  to  retract  their  signatures  from  a  certain 
circular,  dated  March  15,  1879,"  in  which  these 
grievances  were  stated  in  moderate  terms,  and 
"to  withdraw  their  support  from  a  pro  rata  freight 
bill,  which  was  then  before  the  Assembly." 

The  committee  concluded  their  analysis  of  the 
testimony  with  a  citation  of  the  Shoelkopf  & 
Matthews  agreement,  whereby  the  New  York 
Central  Railroad  boimd  itself  to  carry  to  New 
York,  for  these  millers  situated  at  Niagara  Falls, 
at  a  pro  rate  of  the  through  east-bound  rate  on 
grain  or  flour,  whatever  it  might  be,  which  enabled 
these  millers  to  maintain  their  mill  in  full  operation 
while  their  neighbors  were  going  out  of  business 


130    Railways  in  the  United  States 

simply  because  they  had  not  as  favorable  a  con- 
tract. The  contract  appeared  to  have  been  made 
for  five  years,  and  was  to  be  valid  on  condition 
that  it  was  to  be  kept  secret.  Personal  discrimina- 
tion could  go  no  farther  than  was  illustrated  in 
that  case. 

This  investigation  proved  conclusively  that 
every  charge  that  had  been  made  against  the  rail- 
way corporations  by  the  commercial  bodies  of 
the  State  was  under-stated  rather  than  over-stated ; 
that  these  great  trusts  had  fallen  into  the  hands 
of  persons  who  exploited  them  for  their  personal 
benefit  solely;  that  the  pubHc  was  only  in  so  far 
regarded  as  any  tyrant  would  regard  the  public; 
that  it  was  dangerous  to  exasperate  them  too 
much ;  and  that  as  freight  charges  are  in  the  nature 
of  taxes,  if  a  continuous  revenue  from  taxation 
is  wanted,  it  must  stop  short  of  confiscation. 

The  recommendations  of  the  committee,  there- 
fore, were  embodied  in  bills  which  embraced,  in 
substance,  the  commission  bill  which,  with  some 
slight  modifications,  had  been  previously  drafted 
at  the  request  of  the  Board  of  Trade  and  Transpor- 
tation; a  bill  upon  the  subject  of  railway  proxies, 
railway  consoHdations,  and  stock  waterings;  a  bill 
to  regulate  the  transportation  of  freight  by  the 
railroad  corporations,  so  as  to  prevent  unjust  dis- 
criminations; and  a  bill  to  insure  a  uniform  system 
of  accounts  and  a  different  system  of  reports. 

Of  these  bills,  the  one  to  create  a  board  of  com- 
missioners became  law;  likewise  the  one,   with 


Railroad  Commissions  131 

considerable  modification  and  amendment,  upon 
the  subject  of  proxy  voting;  also  the  one  which 
prescribed  a  different  method  of  rendering  ac- 
counts.   The  other  bills  failed  of  adoption. 

RAILROAD  COMMISSION  ACT  IN  NEW  YORK 

The  New  York  commission  bill  was  passed,  and 
Governor  Cleveland,  as  one  of  his  first  acts  after  his 
installment  into  office,  appointed  Messrs.  Kernan, 
O'Donnell,  and  Rogers  commissioners.  The  bill 
authorized  the  Chamber  of  Commerce,  the  Board 
of  Trade  and  Transportation,  and  the  Anti- 
Monopoly  League,  to  nominate  one  of  the  commis- 
sioners to  the  Governor;  and  Mr.  O'Donnell  was 
so  nominated  by  two  of  the  three  bodies,  and  the 
Governor,  under  the  bill,  made  the  appointment. 

By  the  establishment  of  this  commission,  the 
long  struggle  between  the  railways  of  the  State 
of  New  York  and  the  people  was  brought  to  a 
close,  favorably  to  the  people.  A  body  has  now 
been  interposed,  with  power  somewhat  similar  to 
that  of  the  Massachusetts  commission,  between 
the  people  and  the  powerful  railway  corporations, 
clothed  with  authority  for  searching  and  contin- 
uous investigation  and,  in  all  probability,  that 
body  will  prove  to  be  a  permanent  one.  The 
sense  of  responsibility  in  the  performance  of  the 
task,  together  with  the  natiural  aptitude  of  intel- 
ligent men  to  grow  to  the  work  they  have  in  hand, 
will,  in  time,  make  this  commission  a  valuable  aid 


132     Railways  in  the  United  States 

to  proper  legislation.  The  important  interests 
constantly  connected  with  the  subject  committed 
to  their  care  will  cause  the  work  of  the  commis- 
sion to  be  carefully  watched,  and  the  strong 
temptations  that  are  placed  in  the  way  of  these 
commissioners,  in  consequence  of  the  enormous 
wealth  and  power  of  one  of  the  parties  constantly 
before  it,  will  inevitably  cause  the  commission  to 
act  with  prudence,  for  the  purpose  of  shielding 
themselves  against  suspicion. 

RAILROAD  COMMISSIONS  IN  OTHER  STATES 

During  the  same  years,  other  States  had  parallel 
experiences  in  struggles  for  the  appointment  of 
railroad  commissioners.  There  are  now  [1883]  in 
existence  fourteen  railroad  commissions  in  the 
various  States  of  the  Union  [45  in  1910],  whose 
business  it  is  to  supervise  and  investigate,  if  not 
control,  the  railroad  corporations  within  the  State ; 
to  report  such  amendatory  laws  as  in  their  opinion 
are  necessary  for  the  purpose  of  correcting  the 
abuses  incident  to  railroad  management;  and  to 
cause  actions  to  be  instituted  to  prevent  either 
violations  of  charter  limitations  or  violations  of 
the  rights  of  shippers  or  passengers,  which  may 
be  brought  to  their  notice.  [In  1910  nearly  every 
State  had  a  Board  of  Railroad  Commissioners.] 

During  this  period,  the  valuable  reports  on 
internal  commerce,  issued  by  Mr.  Joseph  Nimmo, 
Chief  of  United  States  Bureau  of  Statistics,  aided 


Federal  Regulation  133 

considerably  in  creating  an  enlightened  public 
opinion  on  the  relations  of  the  railways  to  the 
State,  and  the  part  that  they  perform  in  the  move- 
ment of  the  commerce  and  development  of  the 
industry  of  the  nation. 

EFFORTS  TO  REGULATE  COMMERCE  BY  COMMISSION 
OR  BY  PRO  RATA  FREIGHT  BILL 

During  the  last  five  years  [1883],  efforts  were 
made  in  the  United  States  Congress  to  create  a 
Board  of  Railroad  Commissioners  for  the  United 
States,  to  exercise  over  all  the  railway  corporations 
doing  an  interstate  business  the  same  kind  of  super- 
vision and  control  as  is  exercised  by  the  various 
State  commissions  over  corporations  chartered  by 
the  several  States.  Almost  pari  passu  with  this 
attempted  reform,  an  annual  effort  is  made  in 
Congress  to  regulate  interstate  commerce,  without 
the  intervention  of  a  commission,  in  the  passage 
of  a  freight  bill,  in  the  natiure  of  a  pro  rata  bill, 
containing  anti-discrimination  clauses.  Thus  far, 
the  advocates  of  the  two  measures  have  opposed 
each  other,  and  probably  no  good  results  will  be 
accomplished  until  the  friends  of  federal  legislation 
agree  upon  a  commission  bill,  as  the  entering 
wedge  to  such  legislation  as  should  properly  be 
passed  by  the  United  States,  for  the  purpose  of 
making  this  enormous  interest,  in  the  aggregate 
more  powerful  than  any  single  State  organization, 
amenable  to  the  better  concentrated  public  power, 


134     Railways  in  the  United  States 

as  represented  in  the  United  States  Congress.  The 
railroad  corporations,  organized  by  the  States, 
have  thus  far  resisted,  at  every  step,  every  attempt 
to  make  them  amenable  to  federal  legislation. 
Although  many  of  these  corporations  derive  their 
charter  powers  from  several  States,  and  substan- 
tially run  cars  over  the  territory  of  half  the  Union, 
they  nevertheless  insist  that  they  are  amenable 
only  to  such  States  as  have  granted  them  their 
charter  privileges,  and  that  the  United  States 
Congress  can  not  properly  exercise  any  control 
over  them.  The  necessity  of  the  case,  as  well  as 
sound  logic,  fights  against  their  cause ;  and  the  time 
is  not  far  distant  when  the  people,  as  represented  in 
the  general  government,  must  take  in  hand  the 
railway  corporations  of  the  United  States,  con- 
centrated as  they  now  are  in  power  by  becoming 
more  and  more  under  the  control  of  a  few  leading 
minds  who  can  be  gathered  together  in  a  single 
room  of  a  gentleman's  private  house,  and,  for 
weal  or  for  woe,  can,  and  do,  more  materially  affect 
the  welfare  of  the  people  of  the  United  States  than 
can  any  representative  body  organized  in  any  of 
the  States  of  the  Union  or  under  the  federal  con- 
stitution. It  is,  therefore,  not  a  figure  of  speech 
to  say  that  an  imperium  in  imperio  has  grown  up 
in  the  community,  which,  by  combination  and 
concentration  of  power,  is  more  powerful  than 
the  community,  and  that  the  question  of  making 
it  amenable  to  the  general  powers  of  the  govern- 
ment is  no  longer  one  of  expediency,  but  one  of 


Problems  for  Solution  135 

prime  necessity.  [The  Interstate  Commerce  Com- 
mission was  established  by  an  act  of  Congress  in 
1887.] 

Questions  Still  Undetermined 

This  brings  us  to  a  consideration  of  some  of  the 
general  questions,  which  are  as  yet  unsolved  prob- 
lems, with  reference  to  the  government  of  railways, 
either  by  the  State  or  by  private  management. 

RAILWAYS  CANNOT  COMPETE  LIKE   OTHER 
BUSINESSES 

The  general  result  of  investigation  in  the 
past  fifteen  years  of  the  railway  question  in  the 
United  States,  and  the  development  that  has  taken 
place,  both  in  railway  construction  and  in  many 
of  the  evils  incident  to  railway  administration, 
have  modified  both  public  opinion  and  the  opinion 
of  experts  who  are  not  blinded  by  personal  interest, 
on  the  subject  of  the  extent  to  which  competition 
is  a  regulator  of  the  price  of  service  in  railway 
transportation.  It  went  hard  for  the  free-trader 
to  surrender  his  faith  in  competition  and  to  admit 
that  it  is  not  a  universally  applicable  principle. 
It  has  now  been  ascertained  that,  notwithstanding 
the  enormous  progress  of  railway  construction  in 
the  United  States  within  the  past  thirty  years 
[prior  to  1883],  railways  can  never  be  multiplied 
to  such  an  extent  as  to  make  them  compete  in  the 


136     Railways  in  the  United  States 

same  sense  that  grocers,  butchers,  hatters,  and 
shoemakers  compete.  They  will  be  at  war  for  a 
time,  and  then  comes  a  long  period  of  peace,  when 
the  railways  work  under  combination  even  at  com- 
petitive points.  It  is  difficult  to  tell  whether  the 
war  is  not  more  injurious  than  the  peace,  so  far 
as  public  interests  are  concerned.  When  there  is 
competition  between  rival  hatters,  customers  are 
treated  alike  at  one  or  the  other  shop  in  the  pur- 
chase of  the  commodity  they  want,  and  even  if 
they  are  not  so  treated,  no  great  harm  is  done. 
A  railway  war  is  generally  carried  on  secretly  for 
a  considerable  period  of  time  before  open  hostilities 
begin.  Railways,  in  vying  with  each  other  for 
business,  seek  to  obtain  the  more  important  cus- 
tomers from  eacn  other,  and  make  concessions  to 
larger  shippers  which  they  are  not  ready  to  make 
to  the  smaller  men.  This  instantly  gives  to  the 
larger  shipper  so  great  an  advantage,  in  addition 
to  that  which  he  already  has  by  reason  of  his 
greater  capital,  over  the  smaller  man  in  the  same 
line  of  trade,  that  the  smaller  dealer  does  his 
business  at  a  loss ;  he  discovers  that  his  formidable 
rival  can  offer  goods  at  prices  with  which  he  can 
not  compete,  and  he  is  frequently  driven  out  of 
business  or  into  bankruptcy  by  reason  of  a  secret 
advantage  which  his  stronger  competitor  has  in 
transportation  rates. 

Thus  monopoly  breeds  monopoly,  and  cen- 
tralization of  business  is  built  up,  not  by  greater 
natural  aptitude,   but  by  injustice    and  wrong. 


Problems  for  Solution  137 

Even  during  periods  of  railway  peace  these 
advantages  are  frequently  got  and  maintained 
by  the  more  formidable  shipper  for  the  piu-- 
pose  of  tying  him  to  a  particular  railway,  with 
the  mischievous  tendency  to  make  the  poor 
poorer  and  the  rich  richer.  This  personal  system 
of  tariffs  produces  absolutely  the  same  effect  as 
unequal  taxation.  As  the  beneficial  results  of 
competition  are  not  obtained  by  duplicating  lines, 
such  additional  routes  are  an  evil  rather  than  a 
good.  The  large  expenditure  of  capital  in  creating 
the  duplicate  line  might  have  been  saved,  since 
but  very  few  railway  corporations  in  the  world 
have  their  road-bed  taxed  to  their  maximum 
capacity.  The  existence  of  the  new  line  built  for 
competition  is  in  reality  an  investment  of  an 
enormous  amount  of  capital  to  divide  the  traffic 
which  the  existing  line  is  perfectly  competent  to 
carry,  and  results  in  the  traffic  being  done  at  a 
very  much  greater  expense  for  fixed  charges  than 
if  the  existing  road  had  added  to  its  rolling  stock 
facilities  and  had  been  permitted  alone  to  accom- 
modate such  traffic.  When  peace  is  made,  rates 
are  fixed  so  high  as  to  afford  a  reasonable  expec- 
tation of  a  return  upon  a  very  large  amount  of 
capital  unnecessarily  expended  in  the  building 
of  so-called  rival  lines.  This  has  led  to  the  general 
conviction  that,  for  economizing  capital  and  pro- 
ducing, through  these  instrumentalities  of  com- 
merce and  of  trade,  the  maximum  result  for  the 
benefit  of  society,  it  would  be  better  were  we  to 


138    Railways  in  the  United  States 

start  de  novo;  and  instead  of  dealing  with  existing 
conditions,  to  transfer  to  a  corporation  a  definite 
field  for  its  operations,  under  strict  supervision 
of  its  tariff  rates,  and  to  stipulate  that  the  cor- 
poration shall  not  be  interfered  with  as  to  the 
field  so  long  as  it  keeps  down  its  rate  to  a  certain 
percentage  of  profit. 

At  almost  every  western  point,  whether  in 
Colorado,  Utah,  or  Arizona,  we  find  railways  just 
constructed,  and  running  two  or  three  trains  a 
day,  threatened  with  rival  enterprises,  which  pro- 
pose to  divide  between  them  the  Httle  traffic  that 
there  is,  and  to  destroy  the  profitableness  of  the 
capital  investment  in  the  original  line,  so  that  in 
the  end  the  business  divided  between  them,  at 
extortionate  rates,  is  not  sufficient  to  pay  for  opera- 
ting expenses  and  fixed  charges  on  both  capitaliza- 
tions. But  we  are  not  now  called  upon  to  deal  with 
this  question  de  novo,  as  railway  development  in 
the  United  States  has  proceeded  to  a  point  to  make 
assignments  of  fields  almost  impossible  of  accom- 
plishment through  the  instrumentality  of  legis- 
lation. The  railway  companies  themselves  are 
beginning  to  discuss  the  expediency,  as  a  matter 
of  self-preservation,  of  coming  to  some  agreement 
as  to  fields  between  them.  This,  however,  will 
be  extremely  difficult  to  accomplish  by  voluntary 
action. 

However  faithfully  existing  railroad  corporations 
may  adhere  to  an  agreement  not  to  invade  each 
other's  field,  the  absence  of  legislation  holding  the 


Effect  of  Railway  Wars  139 

railway  corporation  to  a  strict  accountability  as 
to  charges  within  the  field  with  reference  to  which, 
by  common  consent,  it  thus  obtains  a  monopoly, 
makes  such  an  agreement  one  that  the  courts 
would  probably  declare  void  as  against  public 
policy.  It  would,  in  reality,  in  the  absence  of  such 
supervision  and  control,  be  a  conspiracy  against 
the  public.  That  the  railway  corporations  already 
discuss  these  questions,  and  begin  to  regard  the 
occupation  of  a  field  as  a  right  arising  from  the 
circumstances  of  the  case  in  favor  of  the  particular 
railway  occupying  it,  is  an  indication  that  the 
railways  themselves  have  abandoned  all  pretense 
of  competition  in  the  same  sense  in  which  that 
term  is  understood  in  private  enterprises.  The 
practical  consoHdations  rapidly  proceeding  under 
commissionerships  like  Fink's,  will  tend  somewhat 
toward  the  solution  of  this  problem,  because  it 
will  enable  the  Government  to  deal  with  these 
corporations  upon  the  basis  of  their  dealing  with 
each  other,  and  at  some  day  or  another  to  prac- 
tically appoint  fields  to  conglomerate  bodies  of 
railway  corporations  in  following  out  the  line 
traced  by  their  voluntary  action. 

EFFECT  OF  RAILWAY  WARS 

One  of  the  peculiarities  of  railway  competition 
is,  that  the  unsuccessful  competitor  in  a  railway 
war,  driven  to  insolvency,  unlike  the  unsuccessful 
competitor  in  mercantile  life  who  is  driven  into 


140     Railways  in  the  United  States 

insolvency,  is  not  thereby  driven  out  of  the 
market.  The  insolvent  corporation  becomes  in 
many  respects  a  menace  to  the  solvent  corpora- 
tion more  formidable  than  it  was  in  its  solvent 
condition.  It  begins,  in  railway  parlance,  to 
"run  wild"  after  its  insolvency,  being  exonerated 
from  paying  interest  upon  bonds,  or  dividends 
upon  stock.  Being  required  to  earn  simply 
operating  expenses,  it  carries  on  a  war  of  rates 
with  a  recklessness  that  threatens  to  break 
the  solvent  corporation,  fighting  it  into  the  same 
condition  of  insolvency.  Therefore,  during  the 
active  railway  war  of  1875-7,  carried  on  between 
the  New  York  Central,  the  Erie,  the  Baltimore  & 
Ohio,  and  the  Pennsylvania  railroads,  the  more 
favorably  placed  New  York  Central  Railroad  did 
not  dare  to  carry  the  war  to  a  point  which  would 
drive  its  adversaries  into  insolvency,  lest  the 
insolvency  of  the  Baltimore  &  Ohio  Railroad,  and 
possibly  of  the  Pennsylvania  Railroad,  might 
threaten  the  solvency  of  the  New  York  Central. 
The  motive  and  the  facility  for  combination  are 
so  great  that  combination  will  almost  invariably 
take  the  place  of  competition;  and  railway  man- 
agers and  legislators  must  now  recognize  as  a  fact 
that  the  railways  are  not,  and  cannot,  without 
the  interference  of  Government,  be  subjected, 
within  any  period  of  time  about  which  we  need 
give  ourselves  any  concern,  to  the  law  of  com- 
petition to  that  degree  that  we  may  look  there- 
from for  the  same  results  as  in  other  departments 


Politics  141 

of  human  activity,  with  any  confident  expectation 
of  maximum  results  to  society  at  minimum  expense. 
The  natural  law  of  competition  being  inapplicable, 
the  question  of  governmental  interference,  there- 
fore, resolves  itself  simply  into  one  of  degree: 
how  far  is  it  expedient  to  regulate  railways  by  the 
public?  and  that  depends  very  much  upon  other 
questions  to  which  in  this  country  we  can  not  shut 
our  eyes. 

POLITICS  AND  THE  RAILWAY 

As  political  machinery  has,  by  a  vicious  party 
system  which  by  no  means  can  find  its  complete 
corrective  in  the  rules  of  civil  service  reform,  more 
and  more  insidiously  divested  the  people  of  self- 
government  within  the  past  generation,  we  are 
in  a  condition  in  which  is  presented  the  question, 
when  we  speak  of  governmental  control,  not 
whether  the  railways  shall  manage  themselves, 
nor  whether  the  people,  through  the  Government, 
shall  control  their  management,  but  whether  the 
railways,  banded  together  in  organizations  having 
at  their  head  powerful,  astute,  intelligent,  and 
somewhat  unscrupulous  men,  shall,  in  affairs  in 
which  they  have  a  large  interest  and  in  which  they 
must  pay  some  regard  to  public  welfare  varying 
in  degree  according  to  circumstances,  manage 
those  important  trusts,  or  whether  the  politicians, 
equally  unscrupulous  and  astute,  but  not  quite 
equal  in  intelligence  as  banded  together  in  party 


142     Railways  in  the  United  States 

machinery,  shall,  in  the  interest  of  those  political 
organizations  which  represent  even  more  remotely 
the  public  interests  than  the  railway  direction 
represents  them,  manage  those  important  trusts 
for  them.  There  are  many  important  reforms, 
therefore,  in  our  governmental  machinery  which 
must  proceed  contemporaneously  with  the  transfer 
of  power  from  the  corporation  management  to 
public  control  before  we  can  hope  for  any 
great  reHef  from  public  control  as  compared  with 
corporate  management.  It  is,  therefore,  well  to 
proceed  slowly  even  in  a  proper  direction  until 
the  machinery  of  government  in  the  United  States 
shall  be  emancipated  more  from  the  concomitant 
and  attendant  bossism,  political  corruption,  and 
chicanery  existing  under  our  representative  and 
party  conditions.  It  must  be  admitted  that  the 
direction  must  be  toward  governmental  control, 
but  this  imposes  upon  the  people  of  the  United 
States  the  duty  of  making  its  governmental  ma- 
chinery fit  to  exercise  such  control.  Neither  the 
State  nor  federal  machinery  is  as  yet  in  that 
condition. 

PROPER  BASIS  OF  RAILWAY  CHARGES 

Another  important  question  which  must  be 
taken  in  hand  with  reference  to  railway  manage- 
ment is  to  find  some  proper  basis  for  railway 
charges.  The  doctrine  which  now  prevails  among 
railway  managers,  of  charging  the  traffic  all  that 


Basis  of  Charges  143 

it  will  bear,  the  basis  upon  which  its  classification 
as  well  as  its  tariff  rates  depend,  is  monstrously 
unjust,  and  should  be  radically  changed.  It  is  true 
that  the  responsibility  of  a  corporation  for  the  car- 
riage of  a  case  of  silks  is  greater  than  when  it  car- 
ries a  bale  of  cotton.  But  the  difference  in  the  rate 
charged  is  not  based  upon  the  slight  premium 
which  would  represent  an  indemnity  fund  for  the 
losses  that  might  possibly  occur  from  the  loss  of 
the  package,  but  the  difference  is  based  really  upon 
the  supposed  profit  that  the  merchant  or  jobber 
makes  on  a  case  of  silk  as  compared  with  the  bale 
of  cotton,  and  that  he  can  afford,  therefore,  to 
divide  with  the  railway  the  larger  amount  in  the 
general  result.  This  makes  this  service  differ  from 
that  of  any  other  rendered  under  competition  in 
society.  What  regulates  prices  ordinarily  is  the 
cost  of  production,  not  the  benefit  to  the  consumer. 
The  laudanum  that  is  intended  to  cure  a  tooth- 
ache costs  at  the  store  of  the  druggist  the  same 
sum  as  the  laudanum  which  is  to  save  a  life.  The 
use  to  which  the  object  is  to  be  put,  or  the  benefit 
conferred  upon  the  consumer,  does  not  affect  the 
price.  It  is  said  by  the  railway  manager,  in 
answer  to  this  position,  that  he  must  regard  his 
traffic  as  a  whole,  and  that,  by  reason  of  the  greater 
value  of  these  first-class  goods  and  the  higher 
charge  which  he  can  make  on  them,  he  is  enabled 
to  carry  the  lower  priced  goods  at  a  rate  at  which 
they  can  be  moved,  and  that,  if  he  were  precluded 
from  charging  the  higher  rate  on  goods  as  readily 


144     Railways  in  the  United  States 

handled,  but  which  are  much  more  valuable  in 
money,  he  could  not  cany  ores,  coal,  or  stone  at 
any  such  rate  as  would  justify  their  transportation 
from  place  to  place.  There  is  force  in  this  position, 
but  not  to  the  extent  to  which  it  is  claimed,  and 
in  that  respect  intelligent  investigation  and  careful 
governmental  control  will  have  to  strike  a  mean 
which  will  be  more  just  than  the  existing  classifica- 
tions, and  so  adjust  the  rates  both  to  consumer 
and  producer  as  to  enable  all  classes  of  commodities 
to  be  moved  without  doing  injustice  to  therailway 
corporation. 

The  application  of  the  doctrine  of  charging 
what  the  traffic  will  bear  substantially  makes  the 
railway  corporation  a  special  partner,  without 
investment  of  capital,  in  every  enterprise  along 
its  line.  The  extent  to  which  unscrupulous  traffic 
managers  and  agents  can,  for  their  private  emolu- 
ment, carry  this  power  of  enforced  copartnership, 
and  that  this  power  is  availed  of,  is  exemplified  by 
the  fact  that  on  comparatively  moderate  salaries 
these  traffic  managers  within  a  very  few  years 
very  often  become  men  of  great  fortunes.  ,  It  is 
a  power  to  which  modern  society  has  known  no 
parallel  since  the  days  of  the  farmers-general  of 
France,  who,  in  consideration  of  a  sum  total  paid 
into  the  French  treasury  during  the  corrupt 
regency  of  the  Duke  of  Orleans,  and  the  reign  of 
Louis  XV.,  obtained  the  privilege  of  having  a 
section  of  France  farmed  out  to  them  to  tax  at 
their  own  will.  It  is  therefore  absolutely  essential, 


Basis  of  Charges  145 

with  reference  to  transportation  lines,  that  with- 
out thereby  fixing  absolute  rates,  severe  penalties 
shall  be  imposed  by  legislation  for  breach  of  the 
public  trust  for  personal  ends,  and  also  that 
stringent  penalties  shall  be  imposed  upon  the 
making  of  discriminations  between  persons  of  the 
same  locality.  It  is  likewise  the  duty  of  the  public 
to  see  to  it  that  some  unit,  whether  car-load  or 
train-load,  be  established,  upon  the  basis  of  which 
all  shippers  shall  be  treated  alike,  and  to  place 
the  smaller  shipper  upon  some  basis  of  equality 
with  the  larger  shipper.  The  smaller  shipper 
should  by  law  be  permitted  to  avail  himself,  in 
combination  with  other  people,  of  the  car-load 
unit. 

MAXIMUM  CHARGES  TO  BE  REGULATED 

Maximum  charges  have,  in  the  experience  of 
England,  been  found  to  be  almost  universally 
useless.  The  economies  in  railway  traffic  arising 
from  steel  rails,  improved  road-beds,  better  gra- 
dients, the  greater  power  of  engines,  reduced  rates 
of  fuel,  and  through  lines  obviating  breaking  of 
bulk,  have  been  so  great  within  the  past  fifteen 
years  that  any  fair  rate  at  one  period  of  time 
becomes  at  any  other  period  so  excessive  as  to 
cease  to  be  a  criterion.  Maximum  rates,  therefore, 
when  fixed,  must  be  so  arranged  as  to  be  under  the 
supervision  of  some  tribunal  commanding  public 
confidence  and  authorized  to  exercise  such  super- 


zo 


146    Railways  in  the  United  States 

vision,  and  to  be  from  time  to  time  registered  upon 
a  lower  scale  with  reference  to  cost  of  traffic. 

SECRET  RAILWAY  TARIFFS 

A  serious  grievance  in  relation  to  American  rail- 
way administration  arises  from  railway  tariffs 
being  secret,  and  subject  to  sudden  changes  or 
modifications.  No  tariff  of  transportation  rates 
should  be  permitted  to  be  changed,  except  upon 
previous  notice  of  a  considerable  period  of  time. 
Even  the  lowering  of  a  tariff  rate  produces  at  the 
outset  as  much  financial  and  commercial  disturb- 
ance as  the  raising  of  it  does.  It  is  said  that  the 
knowledge  obtained  by  the  officers  of  the  Stand- 
ard Oil  Company  in  1880,  that  the  tariff  rates  on 
oil  would  be  suddenly  increased  by  the  railroad 
corporations,  gave  to  that  combination  a  profit 
of  several  millions  of  dollars.  Whether  true  or  not 
is  immaterial.  It  is  possible  for  special  favored 
private  interests  to  be  informed  secretly  of  an 
intended  sudden  change  of  tariff  on  an  im.portant 
commodity.  In  consequence  of  that  information, 
which  necessarily  changes  the  price  of  that  com- 
modity at  the  point  of  delivery  or  at  the  point  of 
shipment,  the  making  of  a  purchase  or  a  sale  in 
advance,  based  upon  that  knowledge,  gives  abso- 
lute certainty  of  a  large  profit,  which  is  so  much 
wrested  from  those  who  do  not  know  it.  This  is 
an  advantage  which  should  not  be  permitted  to 
remain  in  the  hands  of  railway  administrators  to 


Secret  Tariffs  147 

make  use  of,  either  for  personal  ends  or  for  the 
benefit  of  friends  as  they  may  see  fit.  A  law,  there- 
fore, providing  with  great  stringency  that  all 
tariffs  shall  be  published  for  at  least  six  months  in 
advance,  and  that  no  modifications  thereof  shall 
be  permitted  during  that  time,  is  a  necessity  to 
avoid  this  mischief.  Tariffs  also  should  be  pub- 
lished at  every  station,  with  classifications,  so  that 
every  man  doing  business  with  the  railway  corpo- 
ration should  be  permitted,  at  a  glance,  at  every 
station  either  of  delivery  or  of  receipt,  to  compare 
his  freight  bills  with  the  published  tariff  rates, 
and  see  to  it  that  he  is  fairly  treated.  Every  devi- 
ation from  the  tariff  to  a  favored  shipper  should 
result  in  imposing  upon  the  railway  corporation 
that  allows  such  a  deviation  the  payment,  to 
every  other  shipper,  of  a  rebate  based  upon  the 
lowest  shipment  made.  This  penalty  would  be 
so  severe  that  there  would  be  no  longer  any  favored 
shippers,  and  it  is  right  that  it  should  be  so, 
because,  of  all  evils  incident  to  American  railway 
administration,  that  of  personal  favoritism  has 
been  the  most  shameless  and  the  most  mischievous. 
[These  reforms  have  practically  all  been  incor- 
porated in  the  Interstate  Commerce  Act.] 

SECRECY  OF  MANAGEMENT  AND  ITS  EVILS 

Another  problem  presented  by  the  existing  con- 
dition of  the  railways  in  the  United  States  is  that 
which  arises  from  secrecy  of  management.  This 
evil  must  be  dealt  with  radically.    One  of  the  prime 


14S     Railways  in  the  United  States 

motives  for  secrecy  of  management  is  the  enor- 
mous advantage  which  at  the  present  day  it  gives 
to  the  managers  in  the  maintenance  of  their  power. 
They  alone  know  where  the  stockholders  are  to 
be  found,  and  can  therefore  control  votes  by  the 
knowledge  of  how  to  reach  or  buy  them,  thus 
perpetuating  their  control.  Another  motive  is  the 
advantage  thus  afforded  for  stock  speculations. 
The  board  of  managers,  by  keeping  unto  them- 
selves the  knowledge  that  their  property  is  losing 
heavily  in  comparative  traffic,  can  sell  their  own 
holdings  and  go  short  of  the  market,  under  cir- 
cumstances which  will  yield  them  an  absolute 
certainty  of  profit  on  the  transaction.  This  gives 
them  an  enormous  advantage  over  the  community 
by  depleting  the  pockets  of  the  unwary,  who  find 
themselves  saddled  with  stocks  at  high  prices, 
bought  months  in  advance  of  the  public  announce- 
ment that  the  road  is  in  difficulties.  The  knowl- 
edge of  rapid  gains  in  the  development  of  business 
likewise  gives,  so  long  as  it  can  be  kept  secret, 
a  like  advantage  in  purchase  of  stock.  This  advan- 
tage has  been  exploited  to  such  a  degree  in  the 
United  States  that  the  investing  public  has 
become  inspired  with  a  general  distrust  for  railroad 
stock  investments.  [Laws  to  meet  these  condi- 
tions have  since  been  enacted.] 

KEEPING  OF  TRUE   STOCK  LISTS 

In  the  States  of  the  Union  and  under  United 
States  laws  the  existing  condition  of  legislation 


True  Stock  Lists  149 

which  gives  the  absolute  control  of  corporate 
enterprises  into  the  hands  of  majorities  of  stock, 
and  which  gives  to  such  stock  equal  weight,  lends 
itself  to  this  species  of  management,  and  places 
the  stockholders'  interest,  as  well  as  the  public, 
at  the  mercy  of  this  class  of  railway  directors. 
The  majority  of  the  holders  of  record  at  the  time 
of  the  closing  of  the  books  of  a  corporation  have, 
at  the  annual  election,  the  power  to  elect  the  whole 
board  of  directors.  As  much  of  the  stock  of  great 
railway  lines  in  the  United  States  is  held  abroad, 
and  is  not  transferred  on  the  books  to  the  actual 
owners  of  the  property,  but  remains  registered  in 
the  names  of  the  persons  who  had  long  before 
parted  with  all  interest  therein,  there  is,  at  the 
time  of  the  closing  of  the  books  in  a  great  many  of 
these  railroad  corporations,  a  large  fictitious  hol- 
dership,  ranging  from  one  half  to  one  eighth  of 
the  whole  capital  stock  holding  interest,  and  this 
fictitious  holding  frequently  controls  such  election. 
Who  are  fictitious  and  who  are  true  holders  are, 
as  a  general  rule,  approximately  known  to  the 
directors.  The  directors,  therefore,  can  sell  their 
real  holdings  at  high  prices,  and  can  purchase  at 
low  prices  the  fictitious  holdings  or  power  to  wield 
proxies,  and  thus,  for  the  purpose  of  depleting 
the  road,  capture  the  railway,  in  which  neither 
they  nor  the  constituency  that  elected  them,  have 
a  substantial  interest.  This  evil  also  can  be 
remedied  by  legislation.  Severe  penalties  should 
be  imposed  upon  any  one,  having  no  interest  in 


150     Railways  in  the  United  States 

the  corporation,  offering  to  vote,  or  voting,  either 
personally  or  by  giving  a  proxy  to  vote,  at  any 
election  of  directors  of  such  corporation.  [This 
evil  has  been  remedied  by  legislation  in  New  York 
State  as  well  as  in  other  States.] 

MINORITY  REPRESENTATION 

The  severest  blow,  however,  which  could  be 
dealt  to  corporate  mismanagement  would  be  the 
rigorous  introduction  of  minority  representation 
in  boards  of  direction,  which  would  make  secrecy 
of  management,  as  against  the  interest  of  share- 
holders, substantially  impossible,  and  would  pre- 
vent the  possibility  of  the  recurrence  of  some  of 
the  worst  abuses  which  characterize  their  adminis- 
tration. Suppose  twenty  directors  were  to  be 
elected,  the  reform  would  consist  in  allowing  each 
section  of  one  twentieth  of  the  stockholding 
interest  to  elect  one  director,  by  accumulating 
their  votes  upon  a  single  name,  or  by  distributing 
their  votes  for  one  or  more,  as  they  may  see  fit. 
This  is  the  cumulative  plan.  Another  is  the  pre- 
ferential or  list  plan,  in  allowing  each  twentieth 
part  of  the  constituency  to  elect  one  director,  by 
preferences  indicated  on  a  ballot,  in  the  order  of 
the  names  as  printed.  When  the  first  name  has  a 
quota  sufficient  to  elect  him,  i.e.,  one  twentieth 
of  the  votes  cast,  the  ballot  is  counted  for  the 
second  name,  and  so  forth.  The  result  of  this 
system  of  minority  representation  would  be  to 


Minority  Representation  151 

make  of  the  board  of  direction  a  reduced  photo- 
graph of  the  whole  constituent  body,  and  make  it 
impossible  to  capture  an  organization  like  a  rail- 
way from  the  actual  owners  thereof.  Any  one 
of  the  numerous  plans  suggested  for  securing 
minority  representation,  if  applied  to  corporate 
management,  would  successfully  accomplish  that 
result.  The  objection  which  has  been  urged  to 
the  adoption  of  minority  representation  in  public 
representative  bodies  has  no  validity  in  corporate 
elections,  as  in  corporations  neither  localities  nor 
persons  are  supposed  to  be  represented,  but  pecun- 
iar3'-  interests  only.  It  would  better  secure  fair 
representation  than  does  the  English  system  of 
diminished  value  of  votes  in  proportion  to  stock- 
holders' interests,  i.e.,  one  vote  for  every  share  up 
to  ten,  an  additional  vote  for  every  five  others 
beyond  the  first  ten,  and  one  vote  for  every  ten 
beyond  one  hundred  shares;  or,  the  classification 
plan,  by  which  only  a  few  directors  of  the  whole 
retire  each  year;  minority  representation  would 
give  permanency  in  management,  and  prevent 
the  swamping  of  the  interests  of  the  smaller 
shareholders.  [In  some  States,  such  as  Kansas 
and  Missouri,  laws  have  been  enacted  providing 
for  a  system  of  minority  representation  in  boards 
of  direction  of  railway  corporations,  but  no  gen- 
eral law  on  the  subject  has  yet  been  adopted.] 

PRO  RATA  TARIFFS 

Pro  rata  tariffs  are  the  refuge  of  people  of  little 


152    Railways  in  the  United  States 

thought  on  the  subject  of  railway  management. 
It  is  fair  that  for  the  haul  or  for  the  car-load  alone 
there  should  not  be  permitted  a  higher  rate  for 
the  shorter  distance  than  for  the  longer,  as  it  is 
manifestly  unjust  artificially  wholly  to  wipe  out 
and  even  to  reverse  the  advantages  of  proximity 
to  the  market;  but  to  arrive  at  anything  like  a 
just  conclusion  on  this  subject,  it  will  be  necessary 
for  the  railways  voluntarily,  or  compulsorily 
through  legislation,  to  make  a  distinction  in  their 
freight  rates  between  what  they  charge  for  terminal 
handling  and  what  they  charge  for  the  haul.  The 
terminal  handling  at  a  great  market  is  effected  on 
so  large  a  scale  that  it  can  be  done  at  very  much 
lower  rates  for  each  particular  package  than  the 
terminal  handling  at  a  way  station.  The  cars  are 
more  likely  to  be  filled  than  they  are  at  way 
stations,  so  that  a  perpetual  difference  must  exist 
in  favor  of  the  facilities  of  commerce  which  the 
great  centres  of  activity  produce.  This  would  be 
represented  by  lower  terminal  charges  for  places 
like  New  York,  Buffalo,  and  Chicago,  than  at  the 
small  way  stations  or  hamlets  along  the  line.  And 
the  haul  would  be  proportionately  much  less,  and 
justly  so,  from  extreme  points  of  concentration 
of  freights  to  extreme  points  of  market,  because 
the  whole  train-loads  would  go  unbroken  straight 
through.  On  the  other  hand,  it  should  not  be 
permitted  to  be  so  much  less  as  to  invert  the  situ- 
ation, and  to  make  the  more  distant  point  more 
favorably  situated  to  the  seaboard  than  the  nearer 


Pro  rata  Rates  153 

point.     [The    Interstate   Commerce   Act    has    a 
provision  to  meet  these  conditions.] 

Pro  rata  freight  rates  disregard  the  laws  of  com- 
merce in  that  particular,  and  must  therefore  be 
receded  from  wherever  introduced.  On  the  other 
hand,  we  must  not  be  blind  to  the  justification 
which  lies  at  the  root  of  the  demand  for  pro  rata 
rates,  i.e.,  the  unrighteousness  of  inverting  the 
natural  situation,  which  is  ordinarily  done  under 
the  spur  of  a  railroad  war  at  competitive  points, 
under  the  effect  of  which  the  intermediate  locali- 
ties, which  are  at  the  mercy  of  the  monopoly  power 
of  the  railway,  must  suffer  the  burden  of  the  war. 
This  can  be  remedied  only  by  legislation,  but  in 
that  particular  care  must  be  taken  that  the  legis- 
lation shall  not  go  too  far,  as  in  doing  so  it  defeats 
its  own  ends,  because  it  becomes  impracticable 
to  work  under  it,  and  the  repeal  of  the  law  leaves 
matters  worse  than  before  the  law  was  enacted, 
as  the  unsuccessful  law  is  used  as  an  argument 
against  the  expediency  of  any  law  on  that  subject. 
[This  subject  is  sought  to  be  met  by  one  of  the 
provisions  of  the  Interstate  Commerce  Act.] 

directors  should  not  speculate  in 
company's  stock 

A  director  found  speculating  in  the  stock  of 
his  own  road,  either  by  purchase  on  margins  or 
sales  on  margins,  should  be  severely  punished. 
The  temptation  to  sacrifice  the  interests  of  the 


154    Railways  in  the  United  States 

road  to  subserve  his  stock  operations  is  too  great 
to  be  permitted  to  exist.  The  man  who  desires 
to  speculate  in  the  stock  of  his  own  railway  should 
be  required  first  to  leave  the  board  of  direction; 
if  he  fails  to  do  so,  he  should,  on  detection,  be 
punished  as  a  malefactor. 

FICTITIOUS   CAPITALIZATION 

The  fictitious  capitalization  of  railroads  in  the 
United  States  is  an  evil  more  difficult  to  deal  with. 
Many  motives  combine  to  create  such  fictitious 
capitalization.  Some  are  justifiable,  others  are 
sinister.  Take  the  case  of  a  mining  property.  A 
prospector  discovers  a  silver  mine;  he  sells  it  for 
$30,000  to  a  capitalist  in  the  neighborhood.  The 
property  is  not  developed;  the  discovery  may 
amount  to  nothing.  It  may  also  be  worth  millions 
of  dollars.  The  capitalist,  the  first  investor, 
spends  a  few  thousand  dollars  in  developing  the 
property,  and  thereby  ascertains  that  the  leads 
open  into  a  vein  within  the  domain  of  the  Hnes  of 
the  stakes.  He  has  his  ore  analyzed,  and  discovers 
that  it  yields  from  sixty  to  eighty  dollars  a  ton. 
He  thereupon  proposes  to  sell  this  property,  and 
does  sell  it  to  a  stock  company,  who  capitalize  the 
property  at  a  million  of  dollars,  pay  him  a  hun- 
dred thousand  dollars  cash,  and  something  less  than 
half  the  capital  stock,  and  with  the  remainder 
of  the  capital  stock  they  supply  the  treasury 
sufficiently  to  develop  the  property.     They  find 


Fictitious  Capitalization  155 

some  takers  on  the  basis  of  a  million;  others  on 
the  basis  of  half  a  million;  others  on  the  basis  of 
a  quarter  of  a  million;  but,  as  it  is  possible  that 
the  mine  may  be  worth  a  million  of  dollars  by- 
capacity  to  yield  sufficiently  to  pay  interest  upon 
such  a  sum  and  to  return  the  capital  invested 
within  a  given  period  of  time,  there  is  no  public 
wrong  in  such  fictitious  capitalization,  unless  it  is 
accompanied  by  fraudulent  pretenses.  The  injury, 
if  any  is  done,  is  limited  also.  The  individual  has 
invested  his  money  at  an  excessive  valuation,  and 
there  is  an  end.  Railway  corporations  are,  how- 
ever, organized  upon  fictitious  capitalization  upon 
a  different  basis.  A  line  from  one  point  to  another, 
say  a  distance  of  a  hundred  miles,  is  surveyed. 
It  is  ascertained  that  it  will  cost  about  $15,000  a 
mile  to  build,  including  acquisition  of  land,  and 
about  I5000  a  mile  to  equip ;  a  total  of  $20,000  a 
mile.  Application  is  then  made  for  town  and 
county  aid,  which  aid  is  generally  represented  by 
investment  in  the  stock  of  the  road.  The  first  pur- 
pose is  to  give  as  little  as  possible  in  the  way  of 
value  in  return  for  such  money  aid,  and  it  is,  there- 
fore, necessary  to  interpose  between  the  stock  and 
the  property  a  sufficient  number  of  mortgages  to 
make  the  prospective  value  of  the  stock  of  little 
or  no  value.  A  construction  company  is  then 
organized,  which  takes  the  town  and  county  aid 
as  part  of  its  capital,  and  the  railway  corporation, 
instead  of  making  its  contract  upon  the  basis  of 
cash,   issues  to  the  construction  company,   say 


156     Railways  in  the  United  States 

first  mortgage  bonds  of  $20,000  a  mile,  or  possibly 
$25,000  a  mile;  second  mortgage  bonds  of  $20,000 
a  mile,  and  stock  of  an  equal  sum,  making  a  total 
capitalization  of  $65,000  a  mile,  instead  of  the 
$20,000  a  mile  at  which  the  road  could  be  con- 
structed. The  construction  company  is  composed 
generally,  directly  or  indirectly,  of  the  officers  of 
the  road  and  their  friends,  who  build  the  road 
upon  the  basis  of  cash  obtained  by  negotiating 
through  bankers  the  securities  represented  by  the 
bond  issues  of  the  railroad  company ;  they  acquire 
the  stock  for  little  or  nothing,  and  also  frequently 
a  large  proportion,  if  not  the  whole,  of  the  second 
mortgage,  and  in  prosperous  times  they  may  suc- 
ceed in  building  and  equipping  the  road  on  the 
issue  of  the  bonds  secured  by  the  first  mortgage 
alone.  By  this  system  the  road  comes  into  exist- 
ence laboring  under  the  necessity  to  earn,  over 
and  above  operating  expenses,  interest  on  a  funded 
debt,  about  double  the  cost  of  the  enterprise,  and, 
if  possible,  to  earn  dividends  on  the  stock  beyond 
that  sum.  That  this  rate  of  earnings  has  been 
accomplished  in  the  United  States  to  a  very  con- 
siderable degree  is  an  illustration  of  the  remarkable 
development  which  the  country  has  experienced  in 
every  direction  during  the  past  twent}^  years,  and 
is  an  illustration,  likewise,  of  the  enormous  growth 
and  progress  of  all  material  interests  which  have 
taken  place,  because  this  mode  of  stock  and  bond 
issue  is  the  all  but  universal  rule  with  reference  to 
the  construction  of  new  lines  in  the  United  States. 


Excuse  for  Fictitious  Capitalization    157 

THE  EXCUSE  FOR  FICTITIOUS  CAPITALIZATION 

The  excuse  made  by  railway  builders  for  this 
course  of  proceeding  is  that  upon  the  basis  of  an 
ordinary  profit  no  one  would  undertake  the 
extremely  hazardous  task  of  introducing  railways 
into  new  territory.  The  peculiar  risks  incident 
to  such  an  enterprise  are  that  if  the  traffic  fails 
to  come  they  lose  their  money,  and  if  the  traffic 
develops  they  are  in  imminent  danger  of  being 
immediately  compelled  to  divide  such  traffic  with 
some  rival  line;  and  that,  therefore,  they  must 
find  the  return  of  the  capital  and  their  profit,  not 
in  waiting  for  the  development  of  the  business, 
but  in  selling  bonds  and  stock  to  the  investing 
public  upon  a  basis  of  fictitious  value.  So  long  as 
investors  purchase,  without  proper  investigation, 
this  class  of  securities,  it  is  difficult  to  see  how  they 
have  any  ground  for  complaint;  as  the  mode  of 
manufacturing  these  securities  is  sufficiently  well 
known  to  be  a  matter  of  public  notoriety.  As  to 
the  people  at  large,  however,  the  effect  of  this 
fictitious  capitalization  bears  a  different  aspect. 
It  is  true  that  the  cost  of  a  road  and  its  capital 
account  have  but  little  to  do  with  the  rate  at  which 
it  is  required  to  carry  to  and  from  a  few  competi- 
tive points.  It  has,  however,  very  much  to  do 
with  the  fixing  of  the  local  rates,  and  is  a  constant 
incentive  to  increase  the  rates  for  the  purpose  of 
paying  interest  and  return  upon  all  the  capital 
issues  of  the  road.    For  the  state  to  interfere  and 


158     Railways  in  the  United  States 

absolutely  forbid  any  false  capitalization,  which 
is,  in  other  words,  the  anticipation  in  the  capital 
account  of  the  development  in  time  of  the  traffic, 
would  probably  interfere  considerably  with  the 
undertaking  of  new  railroad  building,  unless  such 
interference  and  prohibition  are  accompanied  by 
some  guarantee  of  the  field. 

The  two  evils,  unrestricted  competition  in  rail- 
road building  and  false  capitalization,  hang 
together.  Were  railway  projectors  sure  that  a 
certain  territory  would  be  left  in  their  possession 
until  they  could  receive  a  return  of  the  original 
capital  and  a  reasonable  percentage  on  the  outlay, 
there  would  be  no  reason  for  continuing  the  incen- 
tive to  false  capitalization  in  railway  construction, 
so  that  the  promoters,  by  means  of  this  quasi- 
fraudulent  element,  can  immediately  obtain  a 
return  and  profit  for  the  outlay  of  their  money; 
they  could  then  contentedly  wait  to  receive  an 
adequate  return  for  their  money  upon  the  basis 
of  a  capitalization  bearing  a  close  relation  to  the 
actual  cost  of  the  construction  and  its  equipment. 
Justified  as  is  the  opposition  to  stock  watering, 
both  on  the  part  of  the  investor  and  on  the  part  of 
the  public,  the  reform  of  this  evil  can  only  be  safely 
entered  upon,  and  so  as  to  avoid  materially  check- 
ing new  railway  enterprises,  with  a  concomitant 
change  in  the  policy  of  state  and  national  govern- 
ments. The  fact  must  be  recognized  that  railway 
construction  cannot  be  left  absolutely  to  free  com- 
petition, but  is  a  trust  which  should  be  given  with 


Excuse  for  Fictitious  Capitalization    159 

circiimspection,  and,  when  given,  surrounded, 
first,  with  guarantees  to  the  state  and  to  the  people 
that  the  men  who  undertake  it  will  faithfully 
perform  their  trust,  and  secondly,  with  guarantees 
from  the  people  and  the  state  to  the  entrepreneurs 
that  they  will  permit  them  for  a  given  number 
of  years  undisturbed  (under  limitations  as  to 
charges)  to  obtain  the  advantage  of  the  traffic 
development  which  their  enterprise  has  created, 
without  incurring  the  danger  of  being  compelled 
to  divide  such  traffic  with  another  organization 
entering  upon  the  developed  field  not  to  render 
additional  services  to  the  public  to  be  served 
within  its  line,  but  simply  to  take  away  from  and 
divide  the  income  of  the  existing  road. 

There  is  no  question  that  the  system  is  entirely 
vicious,  but  it  is  a  system  that  has  its  roots  in  the 
false  view  with  which  the  public  has  regarded  rail- 
way enterprises  by  considering  them  as  private 
enterprises  instead  of  public  ones,  and  therefore 
has  given  a  basis  for  the  railway  speculators' 
point  of  view,  that  it  is  their  business,  and  not 
the  public's,  at  what  rate  they  shall  see  fit  to  capi- 
talize their  roads;  and,  as  the  public  gives  no  care 
to  protect  the  railway  constructor  in  his  enterprise, 
the  railway  builder,  in  his  turn,  imagines  that  he 
owes  nothing  to  the  public  in  that  regard. 

Mr.  Poor,  in  the  introduction  to  his  Manual 
for  1883  (and  he  speaks  from  the  railroad  point 
of  view),  cannot  but  admit  "that  the  increase  of 
share  capital  and  indebtedness  of  the  railroad 


l6o     Railways  in  the  United  States 

companies  for  the  three  years  ending  Dec.  31, 
1882,  was  $2,023,646,842,  the  average  cost  per 
mile  of  the  new  roads  being  in  round  numbers 
$70,000."  He  estimates  that  the  cash  cost  of  all 
the  railroads  built  in  the  United  States  in  the  last 
three  years  did  not  exceed  probably  $30,000  per 
mile,  or  $900,000,000  in  all.  He  estimates  there- 
fore, that  more  than  half  of  this  enormous  capital- 
ization is  entirely  fictitious.  He  says,  with  great 
frankness:  "Of  course  such  an  enormous  increase 
of  liabilities  over  cash  outlay  is  to  be  greatly  re- 
gretted, and  is  well  calculated  to  create  a  distrust 
of  all  securities,  good  and  bad." 

TELEGRAPH  RIGHT  OF  WAY  ON  RAILWAY  ROUTES 

There  is  an  abuse  connected  with  railway  admin- 
istration which  requires  legislative  remedy — the 
granting  of  the  right  of  way  for  telegraphic  pur- 
poses at  the  same  time  with  that  for  railway  pur- 
poses. With  every  extension  of  an  old  railroad  or 
the  building  of  a  new  one,  the  Western  Union  Tele- 
graph Company  is  ready  to  step  in  and  stretch 
wires  for  the  new  corporation  or  line,  under  a  con- 
tract that  the  railway  company  gives  to  the  West- 
ern Union  Telegraph  Company  the  exclusive  right 
to  maintain  the  telegraph  service  to  the  towns  and 
stations  along  the  line,  in  consideration  of  which 
the  railway  company  can,  for  its  purposes  in  the 
management  of  its  road  and  in  the  dispatching 
of  its  trains,  use  the  telegraph  line  thus  built.    This 


Future  of  Questions  i6i ' 

gives  to  the  telegraph  Hne  a  free  right  of  way;  and, 
as  the  railway  in  all  territory  west  of  the  Missis- 
sippi and  south  of  the  Potomac  is  in  reaHty  the 
main  line  of  travel,  and  as  along  its  line  towns 
spring  up  and  population  congregates,  it  gives  to 
that  particular  organization  an  enormous  advan- 
tage over  its  competitors  and  all  new  organiza- 
tions, inasmuch  as  it  not  only  gives  a  free  right 
of  way  along  the  line  of  the  railways,  but  an 
exclusive  telegraphic  service  in  connection  with 
the  railways.  This  abuse,  which  as  yet  has 
scarcely  attracted  public  attention,  came  to 
the  surface  only  during  the  recent  controversies 
in  relation  to  the  stock  waterings  and  acquisi- 
tions of  rival  properties  by  the  Western  Union 
Telegraph  Company.  This  is  also  difficult  of 
remedy  without  legislation  recognizing  the  mono- 
poly character  of  railroad  and  telegraphic  enter- 
prises, and  should,  if  permitted  hereafter,  be 
allowed  only  on  condition  that  such  field  may  be 
secured  in  consideration  either  of  lower  charges 
to  the  community,  or  by  providing  some  species 
of  sinking  fund  by  which  the  community  shall 
ultimately  acquire  the  property. 

FUTURE  OF  RAILWAY  QUESTION 

This  brings  us  to  the  final  consideration  of  what 
is  the  probable  future  of  the  railway  question  in 
the  United  States.  The  railways  now  [1883]  repre- 
sent an  aggregate  capital  of  something  approach- 

ZI 


1 62     Railways  in  the  United  States 

ing  $7,000,000,000.  A  considerable  proportion  of 
that  total  capitalization  is  in  the  hands,  or  largely 
under  the  control,  of  less  than  one  hundred  men, 
who  are  not  the  highest  type  of  modern  civilized 
life.  After  giving  them  credit  for  business  capacity, 
shrewdness,  and  intelligence,  there  are  still  lacking 
some  elements  of  character  which  are  created  by 
living  up  fully  at  all  times  to  contracts,  the  basis 
of  the  modern  social  organism.  Unlike  increase 
of  capitalization  in  any  other  business,  increased 
capitalization  in  railroad  enterprises  does  not 
increase  the  number  of  great  capitalists  engaged  in 
the  business,  but  has  a  tendency  to  decrease  it, 
because  amalgamation  and  consohdation  proceed 
with  greater  rapidity  than  extension  of  mileage. 
Compared  with  the  power  represented  by  this 
vast  aggregate  of  capital,  the  power  and  the  influ- 
ence of  nobility  in  any  civiUzed  community  are 
small. 

One  of  the  arguments  in  favor  of  a  great  national 
indebtedness  at  the  time  when  it  was  in  process 
of  growth  was  that,  though  unfortunate  for  the 
country  to  be  compelled  to  roll  up  so  large  a  debt, 
yet  it  had  a  counterbalancing  good,  inasmuch  as 
it  interested  vast  numbers  of  people  in  the  success 
of  the  government  and  in  its  stability  by  the 
pecuniary  interest  of  the  bondholders.  As  the  in- 
debtedness of  the  United  States  was,  at  its  very 
highest,  less  than  one  half  of  the  aggregate  capital 
now  represented  by  the  railway  interest,  it  is  clear 
that  there  is  a  larger  pecuniary  interest  on  the  side 


Future  of  Questions  163 

of  the  railway  to-day,  arising  from  capital  invest- 
ment in  its  obligations,  than  there  was  at  any  time 
on  the  side  of  the  government.  Railway  capital 
is  now  [1883]  four  times  the  amount  of  the  public 
debt.  In  any  contest,  therefore,  between  the 
government  and  the  railway  enterprises,  it  is  clear 
that,  so  far  as  mere  pecuniary  interests  are  con- 
cerned, the  railway  enterprises  largely  prepon- 
derate. Adding  to  this  the  circumstance  of  the 
concentration  of  this  great  railway  power  in  com- 
paratively few  hands,  the  extent  to  which  they 
can  corrupt  the  commonwealths  is  practically 
limited  only  by  their  will. 

At  the  time  of  the  institution  of  the  Government 
of  the  United  States  and  of  the  various  States, 
European  governments  were  great  monopolies  in 
the  hands  of  the  few.  From  the  corrupting  influ- 
ence of  a  like  power  American  statesmen  sought 
to  shield  the  American  people.  Governmental 
responsibility  and  prerogatives  of  executive  power, 
instead  of  being  centralized,  were  diffused  and 
split  up,  and  to  a  large  extent  sacrificed,  for  the 
purpose  of  creating  a  larger  degree  of  individual 
freedom.  The  governments  of  the  States  of  the 
Union  were  therefore  loosely  put  together,  so  that 
public  opinion  could  break  through  at  any  point 
and  influence  them.  Permanent  large  ownerships 
of  land,  titles  of  nobility,  special  privileges  and 
great  accumulations  of  capital  were  guarded 
against  by  abolishing  the  right  of  primogeniture, 
of  patents  of  nobility  and  of  accimiulations.    The 


164     Railways  in  the  United  States 

corporation  was  but  little  extended,  because  credit 
was  but  little  developed  at  the  time  of  the  organi- 
zation of  the  United  States  Government.  Hence  it 
was  not  observed  that  some  of  the  evils  which  were 
thus  carefully  intended  to  be  guarded  against,  such 
as  primogeniture  and  accumulations,  were  allowed 
to  come  back  in  more  aggravated  form  through  the 
perpetual  existence  of  the  corporation,  making 
a  continuous  increase  of  capital  accumulations 
possible  through  its  instrumentaHty,  with  the 
aggravating  circumstances  that,  instead  of  those 
vast  properties  being  in  the  hands  of  individuals 
responsible  for  their  right  conduct  in  their  indi- 
vidual capacity,  and  distributed  by  the  natural 
process  of  death  into  a  greater  number  of  portions, 
the  great  accumulations  and  vast  possessions  of 
modern  times  are  under  the  control  of  boards  of 
directors  having  less  immediate  responsibility  than 
the  individual  to  legal  influences,  and  being  less 
governed  by  considerations  of  a  social  character 
properly  to  administer  their  trusts.  The  United 
States  Constitution  and  the  constitutions  of  the 
States  contain  provisions  against  unjust  taxation 
by  carefully  worded  provisions  that  taxation  shall 
be  equal.  The  amount  collected  for  freight  and 
passenger  traffic  in  the  United  States  by  the  rail- 
ways of  the  United  States  in  1882  was  $770,000,000, 
an  amount  double  that  of  the  revenues  of  the 
United  States  Government.  Every  dollar  of  this, 
as  to  mode  and  manner  of  expenditure,  is  in  the 
hands  of  boards  of  directors,  with  scarcely  any 


Future  of  Questions  165 

accountability  to  the  public,  and  but  a  very  remote 
one  to  their  own  shareholding  interests. 

In  every  presidential  election  for  the  past 
twenty  years  the  railway  corporations  have  taken 
an  important  part.  In  the  election  of  governors 
in  the  various  States  and  in  the  formation  of  the 
State  legislatures,  in  influencing  appointments  of 
committees,  they  play  a  significant  role,  and  one 
which  is  scarcely  any  longer  disguised.  They  do 
this  avowedly  on  the  theory  of  self -protection; 
but  no  irresponsible  body  ever  stopped  short  at 
self-protection,  because  the  power  which  enables 
them  to  protect  themselves  against  aggression  is 
likewise  a  power  which  may  be  wielded  in  aggress- 
ing upon  the  rights  of  others. 

The  mode  and  manner  of  the  collection  of  this 
revenue  is  not  yet  amenable  to  public  control  in 
the  United  States,  and  yet  the  cost  of  transporta- 
tion more  closely  resembles  taxation  in  all  its 
incidents  than  any  other  method  of  receiving 
return  for  services  in  the  industrial  world. 

When  the  railway  corporations,  under  the  ad- 
ministration of  Mr.  Fink,  in  July,  1882,  raised 
their  rates  on  west-bound  freight  from  New  York 
to  Chicago,  from  forty-five  to  sixty  cents  per 
hundred  pounds  on  first  class,  from  thirty-two 
to  fifty  cents  on  second  class,  from  twenty-six 
to  forty  cents  on  third  class,  and  from  nineteen  to 
thirty  cents  on  fourth  class,  every  commodity 
transported  from  New  York  to  Chicago  had  this 
additional  tax  imposed  upon  it  as  part  of  its  cost 


1 66     Railways  in  the  United  States 

of  production  in  Chicago,  in  the  same  manner  as 
though  the  government  had  imposed  the  tax,  and 
there  was  Httle  and  even  less  possibiHty  of  escaping 
from  that  imposition  than  there  is  from  a  govern- 
mental tax. 

It  is,  therefore,  of  at  least  as  much  importance 
to  a  community  to  be  fairly  and  equitably  dealt 
with  in  its  cost  of  transportation  as  it  is  to  be  fairly 
and  equitably  dealt  with  as  to  taxation.  And 
unfairness  and  injustice  in  the  cost  of  transpor- 
tation bring  about  the  same  disastrous  conse- 
quences to  individuals  and  to  classes  as  unfair  and 
unjust  taxation  does.  It  is,  indeed,  a  mild  state- 
ment of  the  case  to  say  that  the  injury  inflicted 
by  the  unfair  cost  of  transportation  is  as  great  as 
that  inflicted  by  unequal  taxation,  because  the 
mischievous  consequences  of  unfair  or  unwise 
transportation  rates  are  necessarily  greater  than 
those  that  arise  from  unequal  taxation,  and  dry 
up  the  prosperity  of  a  community  more  rapidly 
than  do  bad  taxing  laws.  Therefore,  carefully 
worded  constitutional  provisions  designed  to  pro- 
tect the  community  from  the  evils  of  oppressive 
and  unequal  taxation  by  government,  while  leav- 
ing this  great  and  growing  power  of  private  taxa- 
tion without  responsibility  to  government  in  its 
administration,  are  analogous  to  guarding  the 
public  against  the  ravages  of  the  wolf,  and  leaving 
it  unguarded  from  the  attacks  of  the  tiger. 

That  already  the  legislative  bodies  of  the  States 
of  the  Union  are  as  wax  in  the  hands  of  the  modeller 


Future  of  Questions  167 

under  the  manipulations  of  these  great  corpora- 
tions, is  a  truth  which  the  people  have  been  made 
to  feel  in  all  the  more  densely  populated  States, 
in  the  North  and  in  the  East.  How  to  get  back 
their  control,  and  yet  not  change  it  into  a  control 
of  a  very  dangerous  character,  by  adding  the 
supervision  of  the  expenditures  of  the  enormous 
revenues  of  the  railways  to  the  supervision  of  the 
enormous  revenues  of  the  United  States,  and  of 
state  and  local  administrations,  administered  as 
they  are  in  the  main  by  politicians  not  much,  if 
any,  above  the  status  of  the  railway  magnates,  is 
probably  the  most  serious  problem  which,  since 
the  abolition  of  slavery,  has  confronted  the  people 
of  the  United  States. 

There  is  much  keen  perception  and  wisdom  in 
the  way  Professor  Sumner  puts  the  relation  of 
the  Government  to  the  people  in  the  United  States, 
when  he  says  that  the  Government,  in  the  abstract, 
is  all  of  us,  and,  in  the  concrete,  some  of  us,  who,  by 
accident  or  chicane,  obtain  control,  those  some 
of  us  being  not  the  best  of  us,  and  that,  therefore, 
it  always  becomes  a  serious  question  what  these 
some  of  us  should  be  permitted  to  do  for  all  of  us. 
Therefore,  no  heroic  measures  can,  in  the  present 
aspect  of  political  conditions  in  the  United  States, 
safely  be  entered  upon.  These  very  political  con- 
ditions suggest  a  possible  point  of  view  from  which 
we  can  regard  this  powerful  imperium  in  imperio 
of  the  aggregated  railway  corporations  as  some- 
thing other  than  an  unmixed  evil.    The  corruption 


i68     Railways  in  the  United  States 

of  our  political  machinery'  has  proceeded  almost 
simiiltaneously  with  the  growth  of  the  railway 
corporation.  As  the  basis  of  ci\'iHzation,  the 
security  of  capital  is  certainly  of  as  much  impor- 
tance to  a  communit}^  as  its  form  of  government. 
Peoples  have  become  civilized,  and  have  enjoyed 
a  certain  degree  of  prosperity,  tmder  forms  of 
government  other  than  our  own.  No  community 
can  enjoy  prosperity',  or  attain  any  high  degree  of 
civilization,  where  property  rights  are  not  secured. 
Property  protects  itself  best  from  aggression  or 
unjust  tribute  when  it  is  congregated  under  cor- 
porate management,  in  few  hands,  because  it 
becomes,  in  its  centralized  form,  capable  of  wield- 
ing a  power  which  the  politician  is  bound  to 
respect.  Under  the  corrupting  conditions  of  ex- 
isting administrations,  it  has,  perhaps,  been  one 
of  the  modes  of  preserving  property  from  the 
grasp  of  those  who,  in  national,  state,  and  muni- 
cipal governments,  represented  pubHc  power 
ostensibly,  but  really  represented  their  personal 
interests  first,  and  placed  party  caucus  and  boss 
interests  in  the  second  rank.  In  the  long  run,  how- 
ever, this  condition  becomes  intolerable.  No 
community  can  safely  pursue  its  course  of  hap- 
piness and  well-being  where  the  actual  highest 
power  wielded  in  the  commiinity  is  not  responsible 
to  the  people,  where  its  government  is  a  mere 
simulacrum,  and  all  real  power  is  moulded  behind 
the  throne  by  a  mo\'ing  power.  It  is  just  as  objec- 
tionable if  this  moving  power  be  a  band  of  railroad 


Future  of  Questions  169 

directors  who  move  the  government,  as  that  it 
should  be  the  mayor  of  the  palace,  a  church  insti- 
tution, a  cabal  of  courtiers,  or  loose  women. 
Against  such  an  insidious  power  the  ballot  is 
ineffectual,  and  even  revolution  almost  hopeless. 

It  is,  therefore,  essential,  as  a  necessars'  part  of 
the  solution  of  the  problem  before  us,  that  the 
people  of  the  United  States  should  awaken  to  the 
fact  that  their  methods  of  legislation  and  their 
methods  of  selecting  legislators,  their  political 
organization  and  poHtical  administration,  must 
be  reformed  as  well  as  the  railway  administration, 
and  that  the  amenabiHty  of  railwa}'^  to  the  public 
is  very  largely  dependent  upon  such  reform  in 
poHtical  administration.  The  civil  ser\-ice  reform 
is  already  a  step  in  the  right  direction,  and  its 
permanent  estabUshment  will  make  thoughtful 
investigators  on  current  events  less  fearful  of 
clothing  governments,  both  state  and  national, 
with  the  additional  powers  necessary-  to  cope  with 
the  railway  problem.  The  other  more  important 
reforms,  however,  are  those  of  methods  of  legis- 
lation and  representation.  [On  these  subjects 
separate  monographs  by  the  writer  have  been 
contributed  to  the  Cyclopedia  of  Political  Science, 
Political  Economy  and  United  States  History, 
edited  by  John  J.  Lalor.  See  the  articles  "Legis- 
lation" and  "  Representation."] 

The  people  must  concede,  once  for  all,  that  the 
line  of  poHcy  as  to  railway  management  has  pro- 
ceeded upon  a  mistake.    They  must  recognize  the 


170     Railways  in  the  United  States 

fact  that  in  all  services,  the  supply  of  which  is 
limited  to  a  certain  locality,  and  which,  as  to  such 
locality,  can  practically  be  indefinitely  increased 
without  proportionately  increasing  the  plant,  there 
is  a  monopoly  character  implanted  upon  such  ser- 
vice, whether  it  be  the  supply  of  wa3''s  and  means 
of  transportation,  of  gas,  of  water,  of  electricity,  or 
of  motive  power  on  some  general  plan,  which  takes 
these  enterprises  out  of  the  domain  of  competition, 
and  compels  a  treatment  separate  and  apart  from 
that  of  strictly  private  enterprises.  Some  modi- 
fication must  be  made,  Hmiting  the  existence  of 
corporations,  so  that  from  time  to  time  something 
analogous  to  the  service  that  death  performs  in 
the  individual  world  shall  happen  to  their  ac- 
cumulations and  power.  Some  plan  should  be 
provided,  by  way  of  sinking  fund,  or  gradual  ac- 
quisition by  the  Government,  by  which  enterprises 
of  this  character  shall  in  time  become  the  property 
of  the  State.  Such  a  plan  of  compulsory  sinking 
fund  to  repay  capital  must,  of  course,  in  all  cases 
be  accompanied  by  some  guarantee  against  inva- 
sion of  the  field  by  other  organizations;  and,  as 
Mr.  Fink  observes,  in  his  answer  to  inquiries  of 
Mr.Nimmo,in  his  report  for  1878:  "In  the  consid- 
eration of  this  subject  one  important  fact  should 
always  be  kept  in  view,  to-wit,  that  the  effect  of 
the  construction  of  a  greater  number  of  railroads 
than  are  necessary  to  accommodate  the  traffic  is 
to  increase  to  a  great  extent,  not  decrease,  the 
cost  of  transportation.    The  interest  on  the  cost 


Future  of  Questions  171 

of  two  roads  built  for  the  purpose  of  transacting 
the  business  that  could  be  transacted  by  one,  and 
the  cost  of  maintaining  the  two  roads,  are  of  course 
twice  as  much  as  the  interest  and  the  cost  of  main- 
taining one  road."  The  interest  and  cost  of  main- 
taining a  road,  he  estimates  as  from  40  to  60  per 
cent,  of  the  whole  cost  of  transportation.  "It 
foUov/s,  therefore,"  he  continues,  "that  for  every 
additional  road  built  for  the  purpose  of  transacting 
the  business  that  could  be  accommodated  by  the 
road  already  built,  the  cost  of  transportation  is 
increased  from  40  to  60  per  cent."  This  truth 
borne  in  mind  would  enable  the  Government  to 
give  practical  control  of  the  field,  without  thereby 
adding  to  the  cost  of  transportation.  It  could  at 
all  times  annex  the  condition  that  no  more  than 
a  certain  percentage  of  profit  shall  be  earned,  and 
that  out  of  this  surplus  a  sinking  fund  shall  be 
provided,  to  repay  capital  outlay,  and  that,  when 
the  cost  shall  be  repaid,  the  road  shall  become 
public  property. 

We  are  very  far  yet  from  this  solution.  The 
coturse  which  is  likely  to  be  run  in  the  United 
States  in  regard  to  the  railway  problem  is  the 
extension  of  the  commissioner  system  by  State 
legislation  and  its  adoption  by  the  federal  govern- 
ment. A  mass  of  light  thrown  through  the  investi- 
gations of  these  bodies  upon  the  subject  will  make 
matters  appertaining  to  railway  administration 
more  generally  understood  by  the  people  of  the 
United  States.    And,  by  the  time  the  railways  are 


172     Railways  in  the  United  States 

ripe  for  more  heroic  treatment  of  the  question, 
the  people  in  all  probability  will  also  be  ripe  to 
treat  it  more  intelligently,  and  will  have  made  such 
progress  in  the  moral  development  of  the  adminis- 
trative machinery  of  the  government  that  the 
additional  powers  to  be  intrusted  to  that  machin- 
ery can  safely  be  delegated  to  it  by  the  people. 


CHAPTER  III 

[As  a  supplement  to  the  foregoing,  the  following 
paper  read  by  Mr.  Sterne  before  the  Wharton 
School,  University  of  Pennsylvania,  November 
27,  1895,  on  "The  Relation  of  the  Railroads  to  the 
State,"  is  illuminating,  as  showing  the  state  of 
opinion  on  the  railway  question  at  that  date  and 
the  effect  of  the  passage  of  the  Interstate  Com- 
merce Act.  The  opinions  then  expressed  are 
pertinent  even  now.  Mr.  Sterne's  remarks  were 
printed  in  the  Citizen,  the  journal  of  the  American 
Society  for  the  Extension  of  University  Teach- 
ing, and  are  here  given  as  delivered  before  the 
Wharton  School.] 

The  Relation  of  the  Railroads  to  the  State 

One  of  the  wittiest  of  our  writers  has  said  that 
in  youth  we  build  ladders  to  the  moon,  and  in 
mature  years  we  take  these  ladders  down  and 
are  content  to  use  them  as  wood  for  a  cowshed. 

Twenty  years  ago  [1875],  when  the  manifesta- 
tions of  the  evil  of  private  railway  administration 
had  reached  their  maximum  point,  it  seemed  to 
me  that  there  was  much  to  be  said  in  favor  of  the 
opinion,  then  prevalent  among  those  who  had 
given  serious  thought  to  the  question  of  railway 
administration,  that  there  was  another  way  out 

173 


174     Railways  in  the  United  States 

of  the  difficulties  that  then  environed  us  than  the 
taking  over  of  the  railways  by  the  State.  Since 
that  time  the  railway  system  of  the  United  States 
has  so  vastly  increased  in  volume  and  value  that, 
from  the  mere  bulk  of  the  sum  involved,  such  a 
taking  over  has  ceased  to  be  a  practical  idea. 
Many  evils  that  then  existed  have,  under  civiliz- 
ing influences  without  legislation,  and  under  legis- 
lation due  to  such  civilizing  influences,  been  so 
ameliorated,  if  not  abolished,  that  the  pressure 
for  drastic  changes  has  been  relieved;  and  it  has 
become  generally  recognized  that  a  state  adminis- 
tration of  the  railways  by  an  actual  acquisition 
of  the  system  must  be  relegated,  in  the  United 
States,  to  the  limbo  of  discarded  ideas,  probably 
never  to  be  iu"ged  again.  In  the  earlier  history 
of  railway  enterprises  all  the  charters  contained  a 
provision  for  their  purchase  by  the  State  within 
a  certain  time  and  upon  a  certain  basis.  But  no 
effort  has  been  made  in  any  of  the  States  of  the 
Union  to  make  use  of  the  opportunity  thus  pre- 
sented. The  drift  of  thought  had  taken  a  wholly 
different  direction.  Competition — free  field  and 
no  favor — was  regarded  as  the  antidote  against 
monopoly;  and  under  the  stimulus  of  general 
laws  which  enabled  any  given  number  of  persons 
to  file,  at  nominal  expense,  in  a  public  office,  ar- 
ticles of  incorporation  to  run  a  railway  from  any 
point  to  any  other  point,  and,  quite  independent 
and  irrespective  of  public  necessity — which  it  was 
supposed  would  be  gauged  by  the  self-interest  of 


Railroad  and  State  175 

those  who  undertook  the  enterprise, — railway 
projects,  and  railways  as  a  fact,  increased  by  leaps 
and  bounds  in  the  United  States,  and  to  an  extent 
far  surpassing  their  development  in  any  other 
country.  From  decade  to  decade  tens  of  thou- 
sands of  miles  were  added  to  the  railway  system 
which  increased  from  9000  miles  in  1850  to  30,000 
miles  in  i860,  to  52,000  miles  in  1870,  to  93,000 
miles  in  1880,  to  156,000  miles  in  1890,  and  to 
about  170,000  miles  in  1895.  Statistics  vary 
about  this  latter  figiire,  but  for  the  purpose  of  the 
suggestion  that  I  make,  a  mere  matter  of  5000 
miles  is  of  no  great  consequence.  What  I  desire 
particularly  to  draw  attention  to  is  that  the 
Statesman^ s  Year  Book  of  1895 — the  most  au- 
thoritative general  statistical  compendium  in  the 
English  language — gives  the  total  mileage  of  rail- 
ways for  the  whole  of  Europe  at  the  beginning  of 
1894  as  148,174  miles.  We  should,  therefore,  in 
relation  to  any  suggestion  of  taking  over  the  rail- 
way systems  of  the  United  States  by  the  State,  on 
the  theory  that  the  State  is  the  normal  road- 
builder  and  that  its  highways  should  be  in  its 
own  possession,  be  compelled  to  deal  with  railway 
systems  larger  than  those  of  the  whole  of  Europe 
combined,  and  with  an  amount  of  capitalization 
considerably  upwards  of  $11,000,000,000.  A  sys- 
tem of  government  designedly  so  loosely  put  to- 
gether as  that  of  the  United  States,  which  never 
was  intended  to  supplement  private  energy  but 
simply  to  protect  the  lives  and  property  of  its 


176     .Railways  in  the  United  States 

citizens  and  to  leave  them  largely  free  to  look  after 
their  own  development,  is  not,  from  the  nature 
of  its  organism,  the  character  of  its  institutions, 
and  the  requisite  amoimt  of  power  which  is 
wielded  by  it,  in  the  least  adapted  for  the  control 
of  such  an  enterprise,  which  represents  the  largest 
single  investment  of  values  in  the  whole  country. 
Bulk  alone,  therefore,  as  I  have  stated  at  the  out- 
set, remits  all  suggestions  even  of  ultimate  acqui- 
sition of  the  railways  by  the  State  to  the  realm 
of  chimerical  and  scarcely  academic  theories.  We 
must  look,  therefore,  in  an  entirely  different  di- 
rection for  regulation  (we  can  scarcely  speak  of 
control)  of  a  power  which  has  outstripped  all  other 
single  interests,  and  upon  the  prosperity  of  which 
a  very  considerable  proportion  of  the  prosperity 
of  the  whole  nation  depends. 

In  this  connection  let  me  give  a  slight  sketch 
of  what  has  been  done  in  other  countries. 

In  France,  every  cession  of  the  main  lines  was 
limited  to  fifty  years,  within  which  time  the  lines 
were  to  be  permitted  to  remain  in  private  hands, 
the  state  having  power  to  take  over  at  an  expert 
valuation  their  rolling  stock  and  improvements. 
Yet,  although  the  fifty  years  have  elapsed,  no 
effort  is  being  made  by  the  French  Government 
to  act  upon  the  right  possessed,  but,  on  the  con- 
trary, the  influence  of  the  railway  magnates  and 
the  state  of  French  finance  have  been  sufficient 
to  prolong  the  time  of  cession  and  to  make  the 
conditions  of  acquisition  additional  burdens  upon 


Railroad  and  State  177 

the  state  in  the  event  of  its  ultimately  taking 
over  the  properties  of  the  great  radiating  lines 
issuing  from  Paris  and  going  to  the  uttermost 
ends  of  France. 

Stimulated  by  the  example  of  Prussia,  France 
undertook,  shortly  after  its  recovery  from  the 
effects  of  the  war  of  1871,  to  build  state  lines,  but 
even  there  the  possession  of  the  private  lines 
made  itself  felt  so  strongly  that  the  French  ad- 
ministration had  to  content  itself  with  building 
what  is  known  as  vicinal  lines, — small  connecting 
lines  between  the  main  lines  or  transverse  lines, 
running  from  east  to  west  instead  of  radiating 
through  the  territory, — which  have  but  a  limited 
business  and  do  not  pay  a  reasonable  percentage 
upon  the  capital  invested.  So  that  until  1890 
the  proportion  of  private  lines  to  state  lines  was 
93  per  cent,  in  the  hands  of  private  companies  and 
only  7  per  cent,  in  the  hands  of  the  state. 

Italy  allowed  its  railways  to  be  built,  in  the 
main,  by  private  enterprise.  In  all  that  territory 
lying  north  of  the  southerly  line  of  Lombardy, 
and  in  part  of  Tuscany,  which  were  for  many 
years  under  the  control  of  the  Austrian  Govern- 
ment, the  railways  were  governmental  property, 
while  the  railways  south  of  that  line  were  the  prop- 
erty of  Italian  industrial  companies.  When  North 
Italy  fell  into  the  hands  of  the  Italian  state,  after 
the  Franco-Austrian-Italian  war,  the  North  Ital- 
ian lines  became  the  property  of  the  state.  That 
being  the  more  highly  developed  part  of  Italy,  the 

13 


178     Railways  in  the  United  States 

state  itself  constructed  additional  lines,  so  that 
by  the  end  of  the  year  1889  about  60  per  cent,  were 
owned  by  the  state  and  about  30  per  cent,  were 
under  the  mixed  control  of  the  state  and  private 
ownership,  and  only  about  10  per  cent,  in  the  hands 
of  private  owners.  The  Italian  Government  by 
that  time  had  become  so  hampered  and  harassed 
by  its  ownership  and  state  control  that  it  felt 
called  upon  to  re-let  the  major  part  of  its  own 
railways,  placing  them  in  the  hands  of  private 
individuals,  for  their  traffic  development  and 
operation. 

Germany  has  pursued  since  1872  a  wholly  differ- 
ent course.  In  that  year  it  began  to  purchase, 
mainly  for  military  reasons,  the  railways  of  the 
state,  so  that  in  1891,  in  the  whole  of  Germany, 
less  than  10  per  cent,  of  the  railways  of  that  coun- 
try were  private  enterprises. 

Austria-Hungary,  under  the  influence  of  the 
example  of  Prussia,  pursued  the  same  poHcy,  so 
that  the  state,  at  the  end  of  the  year  1891,  owned 
32  per  cent,  of  the  whole  of  the  railway  system 
of  Austria.  The  state  had  leased  about  12  per 
cent,  additional  and  left,  therefore,  under  the  con- 
trol of  private  interests  about  56  per  cent.  In 
Hungary,  at  the  end  of  the  year  1891,  the  state 
owned  and  leased  81  per  cent,  of  the  railway  sys- 
tem, leaving  as  private  enterprise  about  19  per 
cent. 

In  Belgium,  the  railways  are  all  owned  by  the 
state. 


Railroad  and  State  i79 

In  the  Netherlands,  58  per  cent,  of  the  railway 
belonged  to  the  state  in  1891,  and  about  42  per 
cent,  were  in  the  hands  of  private  individuals. 

In  Russia,  36  per  cent,  were  in  the  hands  of  the 
state  in  1891,  and  about  64  percent,  were  private 
interests.  But  this  proportion  is  rapidly  changing 
because,  since  that  time,  the  great  transconti- 
nental railway  has  been  undertaken  by  the  Rus- 
sian Government,  which,  traversing  the  whole  of 
Russia  in  Asia,  will  change  very  considerably  that 
proportion  in  favor  of  the  state. 

In  Roumania  and  Servian  Bulgaria,  the  state 
expropriated  the  various  private  railway  enter- 
prises and,  since  1890,  has  owned  them  all.  In 
Portugal,  about  38  percent,  are  in  the  hands  of  the 
state  and  about  62  per  cent,  in  the  hands  of  private 
enterprise.  In  Spain,  Switzerland,  and  Great 
Britain,  all  the  railways  are  in  the  hands  of  private 
enterprise.  The  governments  of  the  Australian 
Colonies,  on  the  other  hand,  are  the  owners  of 
their  own  railway  systems.  [The  various  changes 
for  these  governments  have  already  been  noted 
in  the  previous  pages  and  the  condition  of  affairs 
shown,  according  to  the  Statesman's  Year  Book 
for  1 9 10,  and  need  not  be  repeated  here.  The 
arguments  are  still  pertinent.] 

There  is,  therefore,  an  immense  field  of  com- 
parison for  the  piupose  of  ascertaining  which  of 
the  two  systems  is  the  better  for  the  development 
of  a  country,  or  whether  the  mixed  system — in 
part  private  ownership  and  in  part  ownership  by 


i8o     Railways  in  the  United  States 

the  state — is  the  one  which  results  most  satis- 
factorily. 

The  advantages,  which  have  developed  mainly 
in  Prussia,  of  a  system  of  state  ownership  are,  first, 
a  unital  tariff  system  organized  with  absolute 
rigor  and  without  deviation  and  wholly  in  the  in- 
terest of  the  community;  secondly,  the  capacity 
to  build  with  the  proceeds  of  loans  bearing  a  low 
rate  of  interest,  the  principal  of  the  obligation 
yielding  in  proceeds  par  and  above  for  the  pur- 
poses of  the  railway;  thirdly,  the  construction  of 
lines  to  develop  traffic  in  certain  sections  of  the 
country,  without  reference  to  immediate  returns; 
fourthly,  the  entire  abolition  of  the  frauds  and 
wrong-doing  incident  to  railway  finance,  where 
such  finance  is  not  subject  to  governmental  con- 
trol or  governmental  supervision;  fifthly,  greater 
freedom  from  accidents  due  to  the  very  great  de- 
velopment of  a  unital  schedule  of  arrival  and  de- 
parture of  trains,  having  reference  to  strict  con- 
nection with  other  lines  and  entirely  free  from  the 
competitive  annoyances  to  which  such  lines  would 
be  subjected  if  they  belonged  to  rival  systems,  as 
they  would  under  private  ownership;  sixthly, 
prompt  repairs  of  highways  and  maintenance  of 
roads,  arising  from  the  fact  that  there  is  no  fund 
belonging  to  bondholders  or  stockholders  which  is 
jeopardized  by  such  application  of  the  income  of 
the  roads.  In  other  words,  the  state,  being  ready 
to  make  up  any  deficit  from  the  earnings  of  the 
railways,  arising   from  the  necessity  of   mainte- 


Railroad  and  State  i8i 

nance  or  the  adoption  of  some  additional  new 
system  of  operation,  can  promptly  devote  the  in- 
come of  the  road,  or  more,  if  necessary,  to  the 
betterment  of  the  property  for  such  purposes. 

The  disadvantages  of  the  system  are  that  it  is 
not  developed  in  the  community  solely  with  ref- 
erence to  politico-economic  considerations  or  busi- 
ness considerations,  but  all  other  conditions  are 
equally  considered,  to  determine  upon  the  de- 
velopment of  any  extension  of  the  growth  of  the 
lines, — such  as  military  considerations,  or,  as  it 
might  be  in  this  country,  political  considerations 
favoring  a  particular  locality  or  district.  Be- 
sides, the  development  of  the  system  is  wholly 
conditioned  and  dependent  upon  the  financial 
condition  of  the  state,  and,  if  any  untoward  cir- 
cumstance happens  to  the  state's  finances,  the  de- 
velopment of  important  industrial  transportation 
is  checked  and  most  injuriously  affected.  Of 
course  there  is  also  a  great  tendency  to  increase 
offices  beyond  an  absolute  necessity  when  the 
railways  are  in  the  hands  of  the  state,  and  there 
is  the  vis  inertia  of  state  control,  as  against  indi- 
vidual initiative,  with  reference  to  the  adoption 
of  improvements. 

The  political  independence  of  a  community 
which  is  made  to  rely  upon  the  state  for  this  great 
service,  so  essential  to  its  welfare  and  progress, 
is  also  somewhat  impaired;  and  the  personnel  of 
railways  is  not  so  apt  to  be  considerate  of  private 
interests  when  the  holders  of  positions  are  wholly 


1 82     Railways  in  the  United  States 

independent  for  continuance  in  office  of  the  treat- 
ment meted  out  to  the  community.  It  has  been 
demonstrated,  however,  that  there  is  no  gain  in 
the  cheapness  of  the  service  of  transportation  by- 
its  being  in  the  hands  of  the  state.  It  is  claimed, 
and  I  believe  with  justice — indeed  it  seems  to  be 
indisputable — that  the  freight  tariff  rates  for  long 
distances  in  the  United  States  are  lower  than  they 
are  anywhere  else  on  the  face  of  the  earth;  that 
economies  in  transportation  have  been  carried 
to  a  higher  degree  of  perfection,  and,  though  the 
general  road-bed  and  superstructures  are  not  as  a 
whole  as  good  in  this  country  as  they  are  in  Euro- 
pean countries,  the  traffic  arrangements  are,  on 
the  whole,  vastly  superior. 

The  mixed  system,  such  as  prevails  in  the  Neth- 
erlands, has  resulted  in  a  controlling  influence  upon 
railways  in  private  hands  exceedingly  oppressive 
to  them.  They  are  practically  run  in  opposition 
to  a  system  not  dependent  upon  income  for  main- 
tenance. In  this  way  the  mixed  plan  operates 
very  much,  in  regard  to  the  private  lines,  as  the 
rivalry  of  a  bankrupt  road  does  upon  a  solvent  one. 
It  has  a  tendency  to  drag  the  solvent  road  into  in- 
solvency, because  the  insolvent  road,  being  eman- 
cipated, for  the  time  being,  from  paying  interest 
upon  its  bonds  and  dividends  upon  its  stock, 
"runs  wild"  with  reference  to  its  freight  rates  and 
simply  captures  business  where  it  can.  There- 
fore, though  publicists  point  with  some  degree  of 
satisfaction  to  the  lowering  of  the  rates  which  the. 


Railroad  and  State  183 

mixed  system  has  produced  in  the  countries  of 
Europe  where  it  has  been  introduced,  the  opinion 
of  the  railway  officials  of  the  private  roads  is  al- 
most unanimous  that  such  a  system  becomes,  in 
the  end,  intolerable  and  must  either  result  in  total 
ownership  by  the  state,  or  in  the  total  abandon- 
ment by  the  state  of  its  railways,  placing  the  leases 
of  them  in  private  hands. 

If  we  come  to  the  conclusion,  as  it  seems  to  me 
is  inevitable  from  what  has  preceded,  that  the- 
ultimate  taking  over  by  the  state  of  the  railways 
is,  so  far  as  we  are  concerned,  wholly  to  be  aban- 
doned, then  the  duty  on  the  part  of  the  state  to 
exercise  some  degree  of  supervision  of  the  manage- 
ment— and,  if  some  degree,  what  degree? — be- 
comes a  most  pertinent  and  instructive  inquiry. 
As  a  result  of  the  entire  absence  of  state  control, 
the  whole  state  machinery  was  in  some  States  of 
the  Union  under  the  domination  of  the  railway 
interests,  and  it  was  with  extreme  difficulty  that 
the  most  flagrant  and  manifest  abuses  could  be 
rectified.  For  many  years  the  State  of  New  York 
was  in  such  a  condition.  The  State  of  New  Jer- 
sey was  in  such  a  condition,  and  even  the  State  of 
Pennsylvania  was  not  entirely  free  from  a  certain 
degree  of  domination  by  railway  interests.  In 
the  newer  States  of  the  Union,  particularly  in  our 
far  western  States,  where  values  of  many  millions 
of  dollars  had  been,  through  subsidies  of  large 
tracts  of  land,  granted  to  the  railways, — and  many 
other  millions  of  dollars  had  been  subscribed  by 


1 84     Railways  in  the  United  States 

counties  and  towns,  much  of  which  was  wasted 
and  lost  by  reckless  adventurers  without  produc- 
ing to  the  communities  a  fair  proportion  of  the 
mileage  of  the  railways  for  which  they  had  sub- 
scribed, and  which  they  had  subsidized, — a  very 
bitter  feeling  was  engendered  against  the  people 
who  had  control  of  the  railway  enterprises,  and 
the  consequence  was  ill-considered,  unwise,  and 
dangerous  legislation.  The  demagogue  denounced 
this  great  useful  instrumentality  of  commerce  as 
though  it  were  a  tyrant,  extracting  by  a  process 
akin  to  taxation  the  values  of  the  State  and  Terri- 
tory through  which  the  tracks  were  operated,  in- 
stead of  being  the  instrumentality  that  gave  value 
to  the  land  and  its  product. 

The  abuses  that  were  incident  to  the  financial 
administration  of  the  railways,  and  to  the  manip- 
ulation of  the  tariff  rates  in  making  local  and 
personal  discriminations,  were  seized  upon  as  illus- 
trations of  the  normal  manifestation  instead  of 
the  abuses  of  the  system ;  and  statute  after  statute 
was  passed  allowing  arbitrary  and  inconsiderate 
interference  with  railways,  without  due  regard  to 
the  relation  of  the  railway  within  a  particular 
State  or  Territory  to  the  whole  network  of  railways 
throughout  the  United  States.  This  had  to  be 
undone,  after  evils  almost  as  great  as  those  that 
had  been  produced  by  the  railway  speculator  and 
manager  had  been  created  in  their  turn  by  the 
demagogue  and  rural  statesman. 

Ovu:  American  communities,  one  after  another, 


Railroad  and  State  185 

had  to  learn  the  lesson  "not  to  pour  out  the  baby 
with  the  bath  water";  and  it  was  not  until  the 
enactment  of  the  Interstate  Commerce  law,  the 
inquiries  preliminary  thereto,  and  the  organiza- 
tion of  the  Interstate  Commerce  Commission  that 
an  intelligent  and  comprehensive  effort  was  made 
to  secure  a  unital  and  intelligent  system  of  con- 
trol, based  upon  facts  as  well  as  upon  theories,  and 
preceded  by  a  knowledge  of  some  of  the  evils  which 
were  intended  to  be  cured. 

In  the  first  place,  it  was  recognized  that  the  or- 
dinary courts  of  justice  could  not  deal,  and  were 
not  in  a  position  to  deal  with  the  questions  of 
discrimination  and  unfair,  local,  or  individual 
preferences,  which  had  become  one  of  the  main  ele- 
ments of  injustice  and  wrong  practised  by  the  rail- 
ways. Therefore,  a  specially  constituted  tribunal 
was  called  into  being,  which,  though  not  originally 
composed  of  experts,  rapidly  became  so  by  ex- 
clusive devotion  to  the  administration  of  one  law. 
Its  application  of  this  law  to  the  facts  of  the  rail- 
way world  had  an  educative  influence  upon  the 
men  themselves,  who  were  called  upon  to  admin- 
ister the  law,  as  to  the  points  of  view  and  the  tech- 
nical data  which  went  to  make  up  the  railway 
charges,  railway  rates,  and  the  elements  that 
govern  the  question  of  rate-making,  either  for  the 
transportation  of  persons  or  of  goods.  That  there 
crept  into  the  law  traces  of  the  older  legislative 
conditions,  as,  for  instance,  reliance  upon  com- 
petition to  regulate  rates,  etc. — survivals  of  the 


i86     Railways  in  the  United  States 

Granger   laws — is   a   matter    which   was   to   be 
expected. 

The  Interstate  Commerce  Act  forbids,  as  rightly 
it  should,  all  preferences  under  like  circumstances 
and  conditions  in  the  rates  to  be  charged  for  the 
transportation  of  persons  and  goods  in  the  same 
direction  from  one  part  of  the  country  to  the  other. 
It  circumscribes  and  defines  the  field  over  which 
the  Interstate  Commerce  law  is  to  operate,  gives 
to  the  Commissioners  the  power  of  investigation 
and  determination,  but  unfortunately  has  left  the 
enforcement  of  its  findings  to  the  ordinary  judicial 
tribunals,  which  have  claimed  to  themselves  the 
right  of  an  independent  investigation  with  refer- 
ence to  the  correctness  of  the  findings  of  the  Com- 
mission. This  to  so  great  an  extent  paralyzes  the 
function  and  power  of  the  Commission  that,  at 
some  near  day,  an  amendment  to  the  law  must  be 
had  to  remedy  this  defect. 

The  law  seeks  to  prevent  any  pooling,  either 
directly  or  indirectly.  This  was  a  concession  to 
the  ultra-radical  school  of  those  who  had  unearthed 
evils  as  they  existed  prior  to  1887,  and  who  thought 
they  saw  in  pooling  an  effort  to  maintain  rates 
beyond  what  was  fair,  and  therefore  to  extract 
from  the  community  an  unjust  tax  for  the  service 
of  transportation.  It  has  been  ascertained,  how- 
ever, that  the  evils  of  uncertain,  fluctuating, 
though  low,  rates  of  transportation  are  greater 
than  those  of  higher  and  certain  rates  of  trans- 
portation, and  that  a  community  can  better  afford 


Railroad  and  State  187 

to  pay  a  high  rate  of  taxation,  provided  the  inci- 
dents and  biirdens  of  taxation  are  evenly  distri- 
buted, than  a  comparatively  lower  rate  with  such 
incidents  and  burdens  badly  or  unevenly  distri- 
buted. Therefore,  many  of  those  who  have  ad- 
vocated this  inhibition  of  pooling  have  been 
weaned  by  the  experiences  of  the  last  eight  years 
from  their  ideas  on  that  subject,  and  there  is  now 
a  general  consensus  of  opinion  that  pooling,  under 
the  supervision  of  the  Commission  and  subject  to 
its  consent,  should  be  permitted;  but  that  it  should 
not  be  done  unless  a  schedule  of  rates,  as  well  as 
the  agreement  to  pool,  and  the  changes  that  the 
pool  will  make  in  the  rates,  are  simultaneously 
submitted  to  the  Commission  when  the  contract 
to  pool  is  submitted.  There  is  also  an  inhibition 
in  the  act  against  charging  more  for  the  shorter 
than  for  the  longer  haul,  with  power  to  the  Com- 
mission to  suspend  the  operation  of  the  act  when 
good  cause  is  shown.  In  some  respects  that  clause 
will  have  to  undergo  modification.  This  point 
is  too  involved,  however,  for  a  paper  of  this  char- 
acter, but  it  has  become  clear  that  the  exigencies 
of  commerce  must,  in  due  time,  make  the  excep- 
tion almost  the  rule,  as  to  the  observance  of  that 
part  of  the  act ;  yet  it  is  manifestly  unjust  to  leave 
a  territory  which  is  absolutely  under  the  control 
of  a  single  railway — the  railway's  short  haul  being 
the  local  territory  generally  circumscribed  by  the 
lines  of  the  State — to  be  taxed  as  the  railway  sees 
fit,  in  order  to  allow  it  to  make  up  its  losses  in- 


i88     Railways  in  the  United  States 

curred  in  railway  wars,  when  it  chooses  to  carry 
through  long  distances  at  ruinously  low  rates,  by 
an  extortionate  charge  to  the  local  territory.  A 
nice  adjustment  of  this  difficulty  requires  all  the 
statesmanship  and  all  the  calmness  and  delibera- 
tion of  which  we  are  capable. 

There  comes  next  in  order  what  has  not  as  yet 
been  attempted — some  control  of  the  financial 
affairs  of  the  great  railway  corporations, — not  a 
control  of  their  finances  in  the  sense  of  preventing 
issues  of  bonds  and  stocks  and  allowing  their  sale 
at  whatever  prices  people  are  willing  to  pay,  but 
to  give  some  assurance  that  the  affairs  of  the  cor- 
porations are  honestly  managed.  That  can  be 
done  only  by  a  system  of  pubhc  audits  of  the 
finances  of  railways.  A  step  has  already  been 
taken  in  the  right  direction  by  the  additional 
power  given  to  the  Interstate  Commerce  Commis- 
sion, not  only  to  make  investigations  of  its  own 
motion  whenever  it  sees  fit  but  to  prescribe  a 
unital  form  of  railway  accounts.  When  that  shall 
be  generally  conformed  to,  and  additional  strength 
and  power  are  given  to  the  Interstate  Commerce 
Commission,  the  next  step  will  be  to  provide  for  a 
public  audit  of  such  accounts,  which  is  essential 
to  prevent  scandals,  and  therefore  losses,  like  those 
which  have  attended  the  administration  of  such 
properties  as  the  Atchison  and  Reading  railroads. 

Within  the  twenty-five  years  that  I  have  been 
an  active  participant  in  the  effort  to  eliminate  the 
evils  incident  to  the  administration  of  the  rail- 


Railroad  and  State  189 

ways  of  the  United  States,  an  extraordinarily 
marked  advance  has  been  made  for  the  better  in 
such  administration.  Gross  forms  of  personal 
and  local  discrimination  are  no  longer  possible. 
When  I  conducted  on  behalf  of  the  Chamber  of 
Commerce  and  Board  of  Trade  of  New  York,  in 
1879,  the  investigation  which  is  known  as  the 
work  of  the  Hepburn  Committee, — which  sat  for 
eight  months  and  took  testimony  comprised  in 
five  huge  volumes  which  are  probably  to  be  found 
in  the  library  of  the  University  of  Pennsylvania, 
the  local  freight  agent  in  the  City  of  New  York  of 
New  York's  leading  line  of  rail — the  New  York 
Central  &  Hudson  River  Railroad — admitted 
that  there  was  no  such  thing  as  a  tariff  for  the 
whole  of  the  local  freight,  carried  over  that  line 
within  the  State  of  New  York,  when  moved  in 
larger  quantities  than  single  packages;  that  every 
rate  was  a  special  rate,  varying  according  to  cir- 
cumstances and  conditions;  and,  when  I  tried  to 
probe  what  these  circumstances  and  conditions 
were — whether  there  was  any  rule  which  governed 
the  rates  that  were  fixed, — it  was  impossible  for 
the  freight  agent  to  fix  any  such  rule  or  to  state  the 
proposition  in  plain  language.  In  other  words, 
a  man  would  get  one  rate  one  day  for  the  trans- 
portation of  goods  from  Rochester  to  New  York; 
he  would  get  another  rate  the  next  day;  and  his 
neighbor  would  get  a  different  rate  for  the  same 
goods,  shipped  under  the  same  circumstances  and 
at  the  same  time.     Of  course,  the  monstrous  in- 


190    Railways  in  the  United  States 

equalities  which  arose  from  this  condition  of  af- 
fairs— inequalities  sufficiently  great  to  make  one 
man  prosperous  and  drive  his  neighbor  into  bank- 
ruptcy— are  altogether  things  of  the  past  in  the 
State  of  New  York,  and  also,  I  venture  to  hope, 
throughout  the  United  States. 

In  the  same  investigation,  it  was  discovered 
that  a  single  flour-mill  at  Niagara,  during  the  ex- 
traordinary contest  for  freight  between  the  vari- 
ous railway  companies — which  pulled  down  the 
freight  rate  on  flour  from  Minneapolis  to  New 
York  to  ten  cents  a  hundred — had  continued  to 
work,  and  ship  its  flour  to  New  York  from  Niagara 
when  every  other  mill  within  the  hmits  of  the 
State  of  New  York  had  been  compelled,  under  the 
pressure  of  this  competition,  to  close  its  doors.  It 
was  claimed  that  this  Niagara  mill  had  machinery 
equal  to  Minneapolis  mills,  while  the  other  mills 
were  antiquated  concerns.  Not  satisfied  with 
this  explanation,  the  probe  of  cross-examination 
disclosed  a  private  contract  which  gave  to  the 
proprietors  of  that  mill  a  pro  rate  of  the  Minne- 
apolis rate,  whatever  it  might  be,  and  therefore 
enabled  it  to  live,  whilst  every  competitor,  under 
the  same  circumstances  and  conditions  and  with 
equally  good  machine  power,  was  compelled  to 
close.  That  form  of  wrong-doing,  let  us  hope,  is 
also  a  thing  of  the  past.  State  after  State  has 
passed  laws  against  such  discriminations,  and  the 
railways  themselves  have  learned  that  that  form 
of  iniquity  kept  from  the  coffers  of  the  railway 


Railroad  and  State  I9I 

companies  their  proper  earnings,  as  effectually  as 
it  sowed  the  seed  of  discontent  and  produced  the 
nettle  of  disaster  to  the  communities  which  were 
subjected  to  the  discrimination.  The  forms  of 
discrimination  which,  in  the  seeking  for  business 
on  the  part  of  the  railways,  made  it  cheaper  for 
the  New  York  merchant  to  send  salt  or  merchan- 
dise by  boats  to  Boston,  and  thence  to  re-transport 
it  to  the  West — Chicago  or  St.  Paul — is  also  a 
thing  of  the  past.  The  grosser  forms  of  fraud  by 
the  treasury  of  railways,  such  as  were  incident  to 
the  history  of  Erie  down  to  1876,  known  as  the 
Fiske-Gould  period,  cannot,  I  think,  again  be  re- 
peated. There  is  a  stronger  watchfulness  on  the  part 
of  the  community  and,  in  some  respects,  a  higher 
sense  of  virtue  on  the  part  of  the  railway  managers. 
Indeed,  it  is  not  siirprising  that  the  railway 
management  in  this  country  should  have  fallen 
short  of  meeting  the  highest  standard  of  morality 
demanded  by  the  importance  and  the  immense 
values  of  the  properties,  when  we  realize  the  ra- 
pidity with  which  this  vast  interest  has  grown.  At 
the  close  of  the  Civil  War,  30,000  miles  of  rail  were 
in  operation  and,  in  1895,  170,000  miles;  at  the 
close  of  the  war,  $750,000,000,  and  in  1895,  |ii,- 
000,000,000  represented  the  total  investment  in 
the  rail  transportation  industry.  Where  were  the 
administrators  to  come  from?  We  are  in  this  re- 
spect placed  in  the  position  that  the  United  States 
was  in,  at  the  outbreak  of  the  Civil  War,  with 
reference  to  finding  generals  for  its  armies.     The 


192     Railwavs  in  the  United  States 

patriotism  and  volume  of  the  population  supplied 
the  army  with  men.  The  difficulty  was  how, 
effectively,  to  lead  them.  And  disaster  after  dis- 
aster befell  our  arms  because  the  men  of  the  North 
were  not  so  miHtant  in  their  education  as  the  men 
of  the  South,  and  because  for  several  years,  and 
until  the  war  itself  developed  them,  there  were  not 
enough  competent  leaders  to  handle  the  men  effec- 
tively. Most  railway  presidents  and  chairmen 
of  boards  come  from  the  ranks  of  other  professions, 
or  from  branches  of  employment  in  the  railway,  the 
business  of  which  is  wholly  foreign  to  the  finan- 
cial administration  of  the  road.  The  capacity, 
industry,  and  knowledge  required  for  the  successful 
handling  of  the  budgets  of  railway  properties, 
which  have  a  gross  income  ranging  from  $12,000,- 
000  to  $40,000,000,  are  as  great  as  that  required 
for  the  balancing  of  the  expenditures  and  receipts 
of  a  nation.  The  aggregate  annual  income  of  the 
railways  of  the  United  States  is  close  upon  $1,250,- 
000,000;  operating  expenses  vary  from  64  to  80 
per  cent,  of  the  income;  and  upon  the  relative  pro- 
portion of  one  to  the  other  of  these  factors  success 
or  failure  depends.  That  proportion  is  determined 
mainly  by  business  and  physical  conditions,  but 
also,  to  a  considerable  degree,  by  the  capacity  of 
the  railway  managers.  Of  the  $1,250,000,000, 
only  between  $250,000,000  and  $350,000,000  are 
annually  available  for  the  payment  of  interest  on 
bonds  and  dividends  on  stock.  Whether  the  net 
earnings  will  suffice  to  meet  the  fixed  charges,  not 


Railroad  and  State  193 

to  speak  of  dividends  upon  stock,  is  largely  de- 
pendent (assuming  honesty,  of  course,  as  a  pri- 
mary requisite)  upon  a  profound  knowledge  of  the 
internal  administration  of  the  railway,  and  the 
development  of  its  earning  power;  and  also,  to  a 
great  degree,  upon  a  prevision,  akin  to  genius,  of 
the  condition  of  markets  and  crops,  and  of  the 
general  financial  situation. 

But  where  are  all  these  gifted  railway  financiers 
to  come  from — full-grown,  Minerva-like, — compe- 
tent to  administer  the  175,000  miles  of  rail  of  the 
United  States,  and  effectively  and  economically  to 
handle  the  800,000  men  directly  employed,  and 
the  3,000,000  of  people  indirectly  employed  by  the 
transportation  companies  of  these  United  States? 
Independently  of  the  almost  impossible  task  of 
finding,  in  sufficient  quantity,  the  extraordinary 
capacities  for  the  proper  financial  management  of 
so  vast  and  so  rapid  an  industrial  growth  as  the 
railway  interest,  there  are  certain  obvious  and 
radical  defects  of  organization  of  railways  which 
expose  them  to  special  danger,  and  which  cause 
railway  enterprises  to  founder  in  very  slight  finan- 
cial storms,  through  which  other  and  smaller  indus- 
trial enterprises  float  with  safety,  such  as  the  fact 
that  there  is  usually  no  reserve  working-capital. 

The  practical  result,  to  which  I  desire  to  draw 
attention  and  to  which  my  experience  and  study 
have  led  me,  is  that  we  are  diverted  from  any  true 
and  useful  purpose  in  Hstening  to  the  suggestions 
of  ultimate  ownership  of  the  railways  by  the  State ; 
13 


194    Railways  in  the  United  States 

that  the  example  of  other  countries  which  com- 
menced to  acquire,  or,  in  the  early  history  of  their 
development,  acquired  such  ownership,  is  of  no 
avail  to  us,  because  we  are  called  upon  to  deal  with 
a  thing  too  vast  for  governmental  control,  and 
particularly  too  vast  for  the  control  of  a  govern- 
ment like  that  of  the  United  States,  with  no  per- 
manent bureaucracy,  and  with  the  whole  scheme 
of  government  antagonistic  to  the  ownership  or- 
direct  exploitation  of  any  such  enterprise.  State 
commissions  have  done  some  good,  but  on  the 
whole  they  have  created  some  mischief  of  their 
own,  and  any  further  development  in  that  direc- 
tion, except  that  of  mere  supervision  and  some  per- 
petual system  of  inquiry  into  the  administration 
of  the  railway  so  as  to  insure  publicity,  is  of  little 
permanent  value.  The  true  development  of  gov- 
ernmental control  lies  in  the  direction  of  strength- 
ening the  Interstate  Commerce  Commission  as  a 
tribunal,  and  giving  to  it  greater  freedom  of  action 
to  relieve  the  railways  from  the  burdensome  re- 
straints against  pooling,  and  to  relax  somewhat 
the  rigidity  of  the  rule  of  the  long  and  short  haul 
clause.  We  must  be  just  to  the  commercial  neces- 
sities of  the  community,  but  we  must  also  put 
under  foot  the  effort  to  use  those  commercial  neces- 
sities for  personal  and  local  ends,  and  with  the 
view  of  creating  a  discrimination  for  the  benefit 
of  A  at  the  expense  of  B.  We  must  never  forget, 
in  dealing  with  the  railway  interest,  that  its  pros- 
perity is  important,  not  only  because  it  is  by  far 


Railroad  and  State  195 

the  largest  bag  in  which  the  past  earnings  and 
savings  of  our  whole  community  are  invested  but 
also  because  its  further  development  is  dependent 
upon  such  prosperity.  Immense  as  has  been  the 
progress  and  general  advancement  of  the  great 
railway  net  of  the  United  States — perhaps  a  little 
ahead  of  the  wants  of  the  period — there  are  still 
many  parts  of  our  country  unsupplied  with  this 
instrumentality  of  commerce.  We  must  leave  it 
sufficient  vitality  and  earning  power  to  induce 
further  and  continuous  investment  in  railway  en- 
terprises, and  we  must  keep  them  open  as  a  field 
for  the  investment  of  the  surplus  earnings,  not 
only  of  the  people  of  this  country  but  of  those  of 
other  nations.  A  want  of  confidence  has  been 
engendered  in  the  minds  of  the  investor  both  at 
home  and  abroad,  in  this  class  of  investment,  from 
two  causes:  one  is  the  apprehension  of  demagogic 
legislation  in  the  United  States  and  the  other  is  the 
fear  (and  this  is  still  more  potent)  of  the  wrecking 
of  the  railway  by  dishonest  and  incompetent  man- 
agers. Conservative  and  wise  legislation  will,  on 
the  one  hand,  reinstate  the  confidence  of  the  in- 
vestor, whilst,  on  the  other,  a  guard  will  be  placed 
against  the  dishonest  and  reckless  manager  by 
strengthening  instead  of  weakening  the  Interstate 
Commerce  tribunal,  by  the  publicity  of  all  railway 
accounts,  and  by  the  insistence  upon  an  inde- 
pendent official  audit  of  such  accounts  through 
officially  responsible  and  independent  accountants. 


APPENDIX 

A  NEW  LEGAL  MAXIM — DE  MAXIMIS  NON  CURAT  LEX'' 

[The  Editor  has  thought  it  desirable  to  include  with  the  preced- 
ing Essays  which  are  directly  concerned  with  the  questions  of 
Railway  Management,  a  paper  brought  into  print  by  Mr.  Sterne 
in  November,  1888,  which  has  to  do  with  the  general  matter  of  the 
relations  of  corporations  with  their  shareholders  and  with  the 
community.  There  is  hardly  a  word  in  this  utterance  of  twenty- 
three  years  back  which  is  not  pertinent  to  many  conditions  that 
are  to-day  troubling  the  community  and  that  are  calling  for 
action  on  the  part  of  the  voters,  the  legislators,  and  the  courts.] 

The  time  has  probably  arrived  when  the  results 
obtained  in  the  courts  of  the  United  States  during 
the  past  thirty  years  may  be  crystallized  in  a  new  legal 
maxim,  and  I  suggest  as  such  a  maxim,  de  maximis  non 
curat  lex.  With  the  time-worn  maxim  "de  minimis 
non  curat  lex"  we  are  all  famiHar. 

Is  it  not  the  experience  of  every  practising  lawyer 
that  when  he  is  brought  into  contact  with  one  of  the 
great  combinations  of  capital  and  its  doings,  when  he 
sees  the  reckless  manner  in  which  it  deals  with  the 
stockholding  interest,  the  artifices  connected  with  its 
administration,  and  the  misrepresentations  and  posi- 
tive frauds  in  relation  to  such  administration,  coupled 
with  the    entire   immunity  from   responsibility  ac- 

^  The  Railway  and  Corporation  Law  Journal,  New  York,  No- 
vember 17,  1888. 

197 


iqS      De  Maximis  Non  Curat  Lex 

companying  the  building  up  of  huge  fortunes  by 
manipulation  of  values  and  their  representatives  by 
unscrupulous  but  extraordinarily  intellectually  gifted 
individuals,  that  the  weapons  of  the  law  break  down 
when  directed^  against  or  brought  into  conflict  with 
these  novel  devices  of  capital  to  escape  legal  responsi- 
bility, which  absorb,  without  rendering  a  compensating 
service,  a  vast  proportion  of  other  people's  goods? 
Take  as  an  example  the  manner  in  which  the  guaranty 
of  the  Manhattan  Elevated  Railroad  Company  to  pay 
eight  per  cent,  on  the  stock  of  the  Metropolitan 
Elevated  Railroad  was  defiantly  broken,  and  this 
breach  maintained.  Every  individual  purchased  his 
stock  in  the  expectation  that  his  own  consent  would  be 
necessary  to  reduce  his  income  below  the  stipulated 
amount  of  the  contract.  But  the  courts  have  held 
that  two  boards  of  directors,  however  constituted, 
may  go  throi-gh  the  form  of  revoking  an  agreement 
made  for  the  benefit  of  third  parties  and  not  for  the 
benefit  of  the  board  of  directors  originally,  although 
such  revocation  of  the  agreement  may  incidentally 
benefit  the  members  of  the  boards  of  directors  voting 
upon  the  subject.  The  courts  have  refused  to  go 
behind  the  returns  made  by  such  boards  of  directors. 
The  decisions  which  have  upheld  the  absorption  of 
rival  lines  by  the  Western  Union  Telegraph  Co.  in 
defiance  of  limitations  on  corporate  authority  and  in 
defiance  of  the  general  laws  of  the  State;  the  facilities 
which  have  been  afforded  to  street,  steam,  and  cable 
railway  companies,  in  disregard  of  constitutional  limi- 
tations, to  lay  tracks  and  confiscate  private  easements, 
are  illustrations  to  the  same  end. 

Is  it  not  true  that  a  stock  manipulator  and  manu- 


De  Maximis  Non  Curat  Lex      199 

facturer  of  the  United  States  may  put  out  issues  of 
securities  of  all  kinds  by  artfully  contrived  representa- 
tions publicly  made  through  others  (so  long  as  he  has 
securities  for  sale)  of  expectations  of  continued 
earnings,  which  illusory  earnings  are  mere  bookkeep- 
ing to  induce  investments,  and  after  the  investments 
are  made,  take  the  very  opposite  position,  showing 
that  the  earnings  that  had  theretofore  been  repre- 
sented to  have  been  made  were  illusory  and  had  not 
been  earned,  that  rival  lines  made  the  earnings  of  the 
same  amount  impossible,  and  that  the  stocks  and 
bonds  were  issued  upon  expectations  that  have  proved 
false,  and  were  substantially  over-issues  as  compared 
with  the  amount  that  can  be  realized  out  of  the  prop- 
erty, and  then  he  himself  become  the  largest  purchaser 
at  the  low  prices,  after  having  sold  at  the  highest,  and 
reorganize  companies  thus  wrecked,  upon  a  new  basis 
of  interest-bearing  securities  lower  than  those  which 
had  been  issued  by  himself  and  his  coadjutors  a  few 
years  before,  making  money  by  inflation,  making 
money  by  ruining  the  inflated  property,  and  again 
making  money  under  reorganization,  all  engineered 
and  manipulated  by  himself  under  the  cover  and  by 
means  of  the  law. 

That  so  monstrous  a  transaction,  yielding  enormous 
sums  of  money  to  its  projectors  and  resulting  in 
disastrous  losses  to  the  investors,  can  succeed,  and 
yet  that  the  law  is  powerless  to  attach  thereto  a  well- 
defined  legal  responsibility  by  way  of  restitution,  must 
arise  from  the  fact  that  the  courts  are  acting  upon  the 
maxim  of  de  maximis  non  curat  lex,  without  knowing 
it. 

The  very  magnitude  of  the  transactions  makes  the 


200      De  Maximis  Non  Curat  Lex 

individual  as  weak  and  powerless  against  the  perpetra- 
tors as  he  is  against  the  government.  He  can  not 
assert  his  rights  without  spending  a  sum  larger,  for  the 
purpose  of  securing  them,  than  that  of  which  he  has 
been  deprived.  When  he  does  get  a  hearing  his  case 
comes  under  one  of  the  exceptions  to  the  general 
principles  of  law  or  equity  on  which  he  relies,  and 
which,  therefore,  ceases  to  make  the  case  at  bar  appli- 
cable to  such  a  manipulating  king,  and  he  finally 
abandons  his  case  disheartened,  or  gets  a  decision 
against  him  in  the  court  of  last  resort  on  a  question  of 
practice ;  or,  if  the  courts  grapple  with  the  question  on 
its  merits,  they  find  themselves  lost  and  amazed  by 
the  financial  difficulties,  and  fail  to  apply  to  so  intri- 
cate and  complex  a  situation  the  plain  principles  of  law 
or  equity ;  so  that  we  have  an  illustration  that  when  a 
fraud  or  wrong  takes  on  colossal  proportions,  in  figiu-es 
which  make  them  analogous  to  those  seen  in  the 
budgets  of  government,  the  litigant  has  no  remedy — 
de  maximis  non  curat  lex. 

There  are  two  reasons  why  the  law  has  no  remedy 
in  these  cases: — 

1st.  The  intelligence  of  our  law  administrators  is 
not  equal  to  the  intelligence  of  our  leading  bankers 
and  railway  magnates.  This  is  a  situation  which 
came  about  by  the  intensity  of  occupations  and  the 
struggle  for  commercial  supremacy  in  the  nineteenth 
century.  The  industrial  development  of  this  age  has 
been  far  beyond  the  juridical  development.  The  law 
has  made  in  recent  years  no  such  progress  as  has  been 
made  by  every  useful  art  and  science.  The  conse- 
quence is  that  the  applied  arts  and  sciences  have 
invited  into  their  fields  the  strongest  and  best  intellects 


De  Maximis  Non  Curat  Lex      201 

of  the  community,  and  they  are  better  equipped  than 
the  law  administrators  in  ingenuity  and  intellectual 
alertness.  Nimbleness  of  mind  is  more  readily  met 
with  in  the  bankers'  and  railway  presidents'  rooms 
than  on  the  appellate  benches  of  the  courts  of  our  land. 
There  is  learning  on  the  one  hand,  and  a  preter- 
naturally  developed  instinct  of  gain  and  the  seizing  of 
opportunity  on  the  other.  The  slower  footed  animal, 
therefore,  cannot  overtake  the  fleeter  organism. 
Before  the  nineteenth  century,  the  government  and 
the  law  had  absorbed  the  strongest  intellects  of  the 
community.  The  nineteenth  century  widened  the 
field  of  activity  for  intellect  and  offered  greater  attrac- 
tions and  greater  profitable  results  in  directions  other 
than  the  law  or  government.  Hence  the  new  maxim, 
de  maximis  non  curat  lex,  although  never  before  formu- 
lated, indicates  that  the  men  for  whose  benefit  this 
maxim  is  practically  applied  are  intellectually  stronger 
than  the  lawmakers  and  law  administrators,  and 
evade  the  spirit  of  the  law  whilst  conforming  to  its 
letter.  Whatever  of  strength  there  is  in  the  law  is 
retained  by  the  stronger  interest  to  be  turned  against 
the  rest  of  the  community.  The  law  becomes  itself 
thereby  an  element  of  oppression,  instead  of  the  benev- 
olent mother  of  Justice. 

2d.  The  law  in  the  machinery  of  formation  has 
not  kept  pace  with  the  general  development  of  the 
community.  Our  lawmaking  is  still  in  the  colonial 
period.  There  is  no  division  of  public  from  local  law. 
No  notice  is  given  of  local  laws  to  those  interested  in 
their  passage  or  rejection,  and  at  the  end  of  each  year 
acts  are  either  purchased  or  smuggled  through  the 
legislative  bodies  affecting  private  interests  without 


202      De  Maximis  Non  Curat  Lex 

any  knowledge  on  the  part  of  the  many  affected 
thereby,  and  unfortunately  without  any  responsibility 
being  attached  to  such  loose  and  slipshod  legislation 
to  the  political  party  in  power. 

The  conditions  of  lawmaking  which  prevail  both 
in  Congress  and  in  the  several  States  were  well  enough 
for  a  sparsely  settled  community  of  planters  and 
farmers,  but  are  utterly  and  ridiculously  inadequate 
as  bulwarks  against  the  pressure  from  those  who  are 
selfishly  and  personally  interested  in  profitable  legisla- 
tion for  themselves  as  against  the  community.  The 
greater  part  of  the  legislation  of  every  session  is,  in 
one  form  or  another,  and  frequently  under  the  guise 
of  general  laws,  mere  sinister  and  personal  legislation. 
Neither  in  the  Federal  Government  nor  in  the  several 
States  has  any  scheme  been  adopted  to  weigh,  scrutin- 
ize, and  winnow  private  legislation,  or  to  attach 
responsibility  for  the  public  laws  which  are  enacted 
during  a  legislative  session. 

In  every  State  in  the  Union,  therefore,  the  maxim  of 
de  maximis  non  curat  lex  is  applied  not  only  to  the 
exclusion  of  meritorious  litigants  seeking  redress 
against  the  long  pen  and  bulky  ledger  of  the  great 
stock  and  bond  manipulators,  but  these  same  captains 
of  finance  and  of  industry,  the  very  men  who  have 
immunity  from  the  law  from  its  punitory  and  repres- 
sive side,  have  at  the  same  time  the  machinery  of  law- 
making in  their  own  hands,  shaped  to  their  own  ends 
by  their  own  ingenuity  and  by  the  neglect  of  the 
commonwealth  to  perfect  its  lawmaking  machinery. 


INDEX 


Accounts,  system  of,  Hepburn 
Committee  report  on,    128; 
under  Interstate  Commerce 
Act,  188 
Acme  Oil  Co.,  126 
Adams,   Jr.,   Charles   Francis, 
views  of,  on  railroad  regula- 
tion, 107-112;  Massachusetts 
R.  R.    Commissioner,    107- 
109 
Africa,  railways  in,  12 
Algeria,  railways  in,  12 
Anti-Monopoly  League,  131 
Appleton,  Edward,  107 
Appleton's      American      Year 

Book,    cited,  10 
Argentine    Republic,   railways 

in,  II 
Asia,  railways  in,  12 
Atlantic  Refining  Co.,  126 
Australia,  railways  in,  12 
Austria,  railway  development, 

10,  61 
Austria-Hungary,  railway  mile- 
age, II,  178 

Baker,  Charles  S.,  120 

Baltimore  &  Ohio  R.  R.,  7, 
115,  122;  lease  to,  98, 

Belgium,  railways  in,  8,  11; 
construction  and  control, 
43-49,  178 

Board  of  Trade  and  Transpor- 
tation, N.  Y.,  112,  114,  115, 
118,  120,  130,  189 

Bolivia,  railways  in,  11 

Boston  &  Albany  R.  R.,    116 

Boston  &  Providence  R.  R.,  6 


Boston  &  Worcester  R.  R.,  6 
Bostwick,  J.  A.,  &  Co.,  126 
Brazil,  railways  in,  1 1 
Bright,  John,  views  of,  69,  70, 

84 
Browne,  Balfour,  84 
Bulgaria,  railways  in,  179 
Burlington  &  Missouri  R.  R., 

subsidy  and  grant  to,  95 

Campbell,  Lord,  opinion  of,  76 
Canada,  railways  in,  1 1 
Canal    and    Railway    Traffic 
Act,  1854,  in  England,  76,  79, 
82 
Cape  Colony,  railways  in,  12 
Capitalization,     railway,      11, 
12;  compared  with  world's 
and  public  debts,    14,    162, 
163;  fictitious,  32,  124;  evils 
of  and  excuse  for,  154-160; 
relation  of  cost  to  rate,  157; 
power  produced  by,  162-165 
Card  well,  Lord,  Act  of  1854,  79 
Central  Ohio  R.  R.,  98 
Central  Pacific  R.  R.,  subsidy 

and  grant  to,  93-95 
Chamber  of  Commerce,  N.  Y., 
115,  117,   118,    120;    Simon 
Sterne,      counsel      for,      in 
Hepburn    railroad    investi- 
gation,   120,  189 
Charges,  proper  basis  of,  142- 
145;    position    of    manager, 
143;  opposite  view,  144 
Cheap    Transportation    Asso- 
ciation, N.  Y.,  112,  114 
China,  railways  in,  12 


203 


204 


Index 


Cincinnati,  Wilmington  & 
Zanesville  R.  R.,  98 

Columbus,  Chicago  &  Indian- 
apolis R.  R.,  98 

Commerce,  regulation  of  inter- 
state, efforts  at,  133-135 

Commission,  royal,  in  England, 
1865,  76;  1873,  84-86 

Commissioners,  R.  R.,  in  Mass- 
achusetts, 106;  in  New  York, 
131;  in  other  States,  132; 
under  U.  S.  laws,  133; 
State  Commissioners  only 
valuable  for  supervision  and 
inquiry,  194 

Committee,  English  railway, 
1844,  66-73;  1853,  75; 
Joint  Select,  of  England, 
1872,  78-84 

Competition,  not  price,  regula- 
tor in  transportation,  135- 
139;  effect  of,  139-141;  not 
applicable  in  railroad  wars, 
140;  evils  of  unrestricted, 
158;  its  relation  to  false 
capitalization,  158;  George 
Stephenson  on,  33,  63 

Converse,  James  C,  107 

Corporations,  power  of,  164 

Cost  of  transportation,  rela- 
tion to  rate,  157;  unfair, 
equals  unfair  tax ,  1 66 ;  remedy 
for,  166 

Credit  mobilier,  94 

Cuba,  railways  in,  1 1 

Dartmouth  College  case,  104 

Day,  Mr.,  126 

De  maximis  non  curat  lex,  a 

new  legal  maxim,  197  et  seq. 
Denmark,  railways  in,  11 
Devoe  Mfg.  Co.,  126 
Discriminations       in       traffic 

charges,    128,    130,    145;    in 

N.  Y.,   114,   115,   119,   185, 

189,  190 
Duguid,  Henry  L.,  120 

Eastern  R.  R.  Co.,  no 


Egypt,  railways  in,  la 

England,  railways  in,  3,  11; 
early  opposition  to,  4;  de- 
velopment of,  5;  mileage,  11; 
legislation  after  1839,  63- 
88;  amalgamation  and  com- 
petition, 75-84;  joint  select 
committee  of  1872,  78-84; 
railway  commission,  76,  84, 
86;  state  _  supervision,  87; 
conditions  in  1895,  179 

Erie  R.  R.,  grants  to,  96;  dis- 
criminations on,  115,  116; 
watered  stock  in,  124;  in 
trunk  line,  122;  Fisk-Gould 
frauds,  191 

Erie  &  Pittsburg  R.  R.,  98 

Europe,  railways  in,  11-12,  43- 
88,  176-183;  not  private 
enterprises,  62 

Farmers'     Alliance,     N.     Y,, 

118 
Fast     freight     lines,    99-101, 

123 
Fictitious  capitalization,  evils 

of,  154-156,  160;  excuse  for, 

^.157-159 

Fmk,  Albert,  commissioner- 
ship  of,  120-123, 165,  170; on 
cost  of  transportation,  170 

Flagler,  Mr.,  126 

Florida  R.  R.,  grant  to,  95 

Florida  &  Alabama  R.  R,, 
grant  to,  95 

Fort  Wayne  R.  R.,  98 

France,  railways  in,  8,  li;  con- 
struction and  control,  49- 
54;  L^on  Say,  view  of,  51; 
Allain  Targ^,  views  of,  52; 
conditions  in  1895,  176;  six 
great  lines,  8-9,  49;  Western 
Railway  acquired  by  State, 
54 

Francis,  History  of  the  English 
Railway,  quoted,  16,  73,  74 

Gault,  William,  on  railway 
reform,  65 


Index 


205 


Germany,  railways  in,  11,  29, 
178;  North  Germany,  54. 
See  Prussia 

Gladstone,  Mr.,  views  of,  66, 
68 

Glyn,  Mr.,  views  of,  66-67 

Gooch,  Sir  Daniel,  85 

Government,  absence  of  sup- 
ervision, 31,  183;  supervi- 
sion, 89,  96,  141,  145; 
subsidies,  93,  right  to  reg- 
ulate, 96;  control,  serious 
problems  of ,  1 67 ;  acquisition , 
why  not  practical,  174-176, 
193-195.     See  State 

Grady,  Thomas  F.,  120 

Grand  Trunk  R.  R.,  98 

Granger  movement  and  legis- 
lation, 101-106 

Gray,  Mr.,  4 

Great  Britain.     See  England. 

Great  Eastern  R.  R.,  77 

Great  Western  R.  R.,  85 

Greece,  railways  in,  12 

Hansard's  Debates,  65,  68 

Haul,  long  and  short,  to  be 
regulated,  152-153;  amend- 
ment of  clause,  187 

Hepburn,  A.  Barton,  chairman 
R.  R.  investigation  com- 
mittee, N.  Y.,  1879,  120 

Hepburn  R.  R.  Investiga- 
tion Committee,  N.  Y.,  120, 
1 89-191;  report  of  work  of, 
123-131;  evils  shown  by, 
189-191 

History  and  political  economy 
of  railways,  1-89 

Honduras,  railways  in,  11 

Hudson,  George,  the  railway 
king,  66,  68 

Husted,  James  W.,  120 

Illinois  Central  R.  R.,  grant  to, 

95 
India,  railways  in,  12;  famine 
in,  22 


Insolvency  of  railroads,  results 
of,  139-141 

Interstate  Commerce  Act,  135, 
147.  153;  value  of,  185;  con- 
sideration of  its  provisions, 
185-188;  forbids  preferences 
and  poolings,  185,  discrimi- 
nations, 186;  amendment  of 
long  and  short  haul  clause, 
187;  system  of  accounts 
under,  i88.     See  Preface,  viii 

Interstate  Commerce  Commis- 
sion, its  educative  influence, 
185;  additional  power  to, 
188;  strengthening  of,  the 
remedy,  instead  of  State 
ownership,  194-195 

Introduction,  iii 

Italy,  railways  in,  12,  62,  177; 
state  ownership,  62 

Ithaca  &  Owego  R.  R.,  charter 
of,  36 

Jamaica,  railways  in,  11 
Japan,  railways  in,  12 

Kansas  Pacific  R.  R.,  grant 
and  subsidy  to,  94,  95 

Kernan,  Mr.,  N.  Y.  R.  R. 
Commissioner,  131 

Lake  Shore  R.  R.,  97 

Leavenworth,  Pawnee  &  West- 
ern R.  R.,  93 

Legislation,  early  mistakes  of 
railway,  35;  in  England,  63- 
87;  in  United  States,  89-172; 
Granger,  103-106;  in  Massa- 
chusetts, 106-112;  in  New 
York,  1 12-132;  reform  in 
methods  of,  169;  demagogic, 
against  railroads,  184 

List,  Friedrich,  on  advantages 
of  railways,  29 

Little  Miami  R.  R.,  98 

London  &  Birmingham,  R.R., 
66 

London  &  Midland  R.  R.,  86 


206 


Index 


London  &  Northwestern  R.  R., 

77 
Long  and  short  haul  charges, 

152,  153,  187 
Louisville  &  Nashville  R.  R., 

121 
Low,  James,  120 

Manchester  &  Liverpool  Ry., 

4 
Maryland,  early  railroads  in, 

7 
Massachusetts,   legislation   in, 

106-112 

Maxim,  a  new  legal — De  maxi- 
mis  non  curat  lex,  197  et  seq. 
Maximum  charges,  36-40;  re- 
gulation of,  145 
Mexico,  railways  in,  11 
Michigan  Central  R.  R.,  98 
Michigan  Southern  R.  R.,  98 
Middle  America,  railways  in, 

II 
Midland  R.  R.,  84 
Miller,  Alexander  E.,  84 
Minority  representation,  reme- 
dy for  corporate  mismanage- 
ment, 150 
Mohawk  &  Hudson  R.  R.,  6 
Monopoly  character  of  corpora- 
tions, 170;  regulation  of,  170 
Morrison,  James,  on  maximum 
rates,  36-40;  views  of,  63-65 
Munn  vs.  lUinois,  106 
Murdock,  Mr.,  4 

Netherlands,  the,  railways  in, 
9,  12,  179;  evils  of  mixed 
system  in,  182 

Neumann,  on  results  of  rail- 
ways, 22 

New  Jersey  Central  R.  R.,  no 

New  York,  early  railways  in, 
41;  Act  of  1850  followed  by 
other  States, 42, 89;  grants  to 
railways,  96;  legislative  ex- 
perience of,  1 12-132;  Fink 
commissionership,    120-123; 


railroad      investigation      in 

1879,     120,     189;    Hepburn 

Committee  report,  123-131, 

189;    Railroad    Commission 

Act,  131 
New  York  Central  system,  6; 

consolidation   of  lines,    113; 

watered    stock,     113,     124; 

discriminations,     115,     116; 

special  rates  on,    119,    189; 

trunk  line,  122 
Nicaragua,  railways  in,  11 
Nimmo,    Joseph,    reports    of, 

132,  170 
North  America,  railways  in,  1 1 
North  Eastern  R.  R.,  77 
Northern  Pacific  R.  R.,  grant 

to,  95 
Norway,  railways  of,  12 
Noyes,  WiUiam  L.,  120 

O'Donnell,  Mr.,  N.  Y.  R.  R. 

Commissioner,  131 
Ohio,  Madison  &  Indianapolis 

R.  R.,  98 
Oregon    &    California    R.    R., 

grant  to,  95 
Outram,  4 

Parsloe,  Joseph,  views  of,  86 
Peake  vs.  Chicago,  Burhngton 

&  Quincy  R.  R.,  106 
Peel,  Sir  Frederick,  84 
Peel,  Sir  Robert,  views  of,  64, 

66,  68,  69,  84 
Pennsylvania   R.    R.,   6,    1 16, 

122;  leases  to,  98 
Peru,  railways  in,  ll 
Philippines,  railways  in,  12 
Politics  and  the  railway,  141, 

165,  166,  167 
Pooling,    forbidden   by  Inter- 
state   Commerce   Act,    186; 

should  be  permitted  under 

supervision,  187 

Pools,    lOI,    121,    186-187 

Poor's  Manual,  7,  13,  159 
Portugal,  railways  in,  12 
Pratt,  Charles  &  Co.,  126 


Index 


207 


Preface  VI 1 

Price,  William  Philip,  84 

Pro  rata  freight  bill,  efforts  to 
pass,  133;  tariff,  not  remedy 
for  evils,  151-153 

Proxy  system,  Hepburn  Com- 
mittee report  on,  127;  bill 
passed  to  remedy  evil  of ,  131 

Prussia,  railways  in,  54-61, 
177;  State  ownership  in, 
advantages  and  disadvan- 
tages of,  179-181 

Quarterly  Review  on  railroad 
legislation,  71 

R.  R.  Commissioners.  See 
Commissioners 

Railway  and  Canal  Committee 
in  England,  80-88 

Railway  administrators,  why 
good  ones  scarce,  1 91-193 

Railway,  history  and  political 
development  of  the,  1-89; 
importance  of  the,  i ; 
mileage,  11,  175;  effect  of 
growth,  14;  its  influence  on 
costs,  17;  increases  produc- 
tion, 23;  advantages  of,  29; 
speculation  promoted  by,  30; 
fictitious  capitalization,  32, 
154-160;  development,  34; 
early  mistakes  of  legislation, 
35;  maximum  rates,  36-40, 
145;  early  U.  S.  charters,  41 ; 
construction  and  control  of, 
in  Europe,  43-88,  176-183; 
legislation  in  U.  S.,  89-172; 
reorganization  committees, 
90;  governmental  subsidies 
and  grants,  93,  102; trunk 
lines,  97;  fast  freight  lines, 
99;  Granger  legislation,  103- 
106;  railroad  commissioners, 
106,  131,  132,  194;  ques- 
tions still  undetermined, 
135.  si  seq.;  future  course  of 
questions,  162-172;  granting 
of  a  field  for  operations  to, 


138,  159,  161,  170;  competi- 
tion not  a  price  regulator, 
139-141;  effect  of  railway 
wars,  139-141;  secret  tariffs, 
evils  of,  146;  secrecy  of  man- 
agement, evils  of,  147; 
government  regulation, 
control  or  acquisition,  89,  96, 
141-142,  145,  167,  174-176, 
193;  relation  to  State,  173- 
195;  falsely  regarded  as  pri- 
vateenterprise,  i59;powerof, 
as  aggregation  of  capital, 
162-170;  part  of,  in  elections, 
165;  grosser  frauds  no  longer 
possible,  191;  proper  ad- 
ministrators not  easily  ob- 
tainable, 1 9 1- 1 93;  relief  of, 
by  strengthening  Interstate 
Commerce  Commission, 
194 

Railway  and  Corporation  Law 
Journal,  197 

Rates,  maximum,  condemned 
in  England,  36;  considered, 
38-40;  regulation  of,  145; 
special  on  N.  Y.  Central,  119. 
See  Discriminations 

Reading  R.  R.,  iio 

Reorganization  Committees, 
90-92 

Report,  Hepburn  R.  R.  Com- 
mittee, to  N.  Y.  State,  123- 
131;  by  Joseph  Nimmo,  132, 
170 

Rockefeller,  Mr.,  126 

Roumania,    railways    in,     12, 

179; 
Russia,   railways    in,    10,    12, 
179 

Say,  L^on,  51 

Secrecy  of  management,  evils 

of,  147  . 
Secret  tariffs,  evils  of,  146 
Servia,  railways  in,  179 
Shoelkopf    &    Matthews,    dis- 
crimination   agreement,    N. 
Y.,  129 


208 


Index 


Sinking  fund  provision  for 
government  acquisition 
suggested,  i6i,  170;  to  be  ac- 
companied by  guarantee  of 
exclusive  field,  170 

South  America,  railways  in, 
II 

South  Carolina,  early  railroads 
in,  7 

South  Improvement  Co.,   125 

Southern  Pacific  R.  R.,  grant 
to,  95 

Southern  Ry.  &  Steamship  Co., 
121 

Spain,  railways  in,  12,  179 

Special  rates  on  N.  Y.  Central, 
119,  189 

Standard  Oil  Co.,  Hepburn 
Committee  report  on,  125- 
127;  its  profit  from  advance 
knowledge,  146 

State  control,  degree  of,  neces- 
sary, 183;  results  of  absence 
of,  in  New  York,  New  Jersey, 
Pennsylvania,  and  other 
States,  183.  See  Govern- 
ment 

State  Grange  organizations, 
N.  Y.,  118 

State  ownership,  no  longer  to 
be  urged,  174, 176,  183;  com- 
pared with  private,  179- 
181;  in  Prussia,  179-181; 
advantages  and  disadvan- 
tages of,  179-181;  poUtical 
independence  impaired  by, 
181;  not  probable,  183.  See 
Government 

State,  relation  of  railroads  to, 

173-195 
Statesman's   Year  Book,  cited, 
4,  9,  10,  13,  45,  54,  61,  62, 

c  175,.  179 

Statistics   of  the   Railways    in 

the  U.  S.,  1909,  8 
Stephenson,     George,     4;    on 

competition,  33,  63 
Sterne,     Simon,     counsel     for 

Chamber  of  Commerce  and 


Board  of  Trade  and  Trans- 
portation in  Hepburn  rail- 
road investigation,  N.  Y., 
1879,  120,  123-131,  189-191; 
sketch  of.  Introduction,  iii, 
and  Preface,  vii;  on  De 
maximis  non  curat  lex,  197  et 
seq. 

Stock  lists,  true,  to  be  kept, 
148 

Stock  speculation,  results  of 
early,  31;  to  be  prohibited 
to    directors,     153 

Stockton  &  Darlington  R.  R., 

4  . 
Subsidies,  governmental,  93 
Sumner,    Prof.,    views   of,    on 

relation    of    government    to 

people,  167 
Sweden,  railways  in,  12 
Switzerland,    railways   in,    12; 

construction,  61,  179 

Targ^,  Allain,  52 

Tariffs,  evils  of  secret,  146; 
publication  in  advance,  147; 
penalty  for  failure  to  pub- 
lish 147,  pro  rata,  not  rem- 
edy for  evils,  152 

Tax,  resemblance  to  transpor- 
tation charges,  165;  remedy 
for  unfair,  166 

Telegraph  companies,  rights 
of  way  over  railways,  evils 
of,  160 

Traffic  charges,  discriminations 
in,  Hepburn  Committee  re- 
port on,  128,  130;  proper 
basis  of,  142-145;  in  N.  Y., 
115,  119,  186,  190 

Transcontinental  Pacific  R.  R., 

32 
Trevitheck,  Mr.,  4 
Trinidad,  railways  in,  11 
Trunk   Unes,   organization  of, 

97-98 
Trusteeship    of    managers    in- 
dicated, 145 
Turkey,  railways  in,  12 


Index 


209 


Union  Pacific  R.  R.,  charter, 
subsidies,   and    grants,   93, 

94 

Unit  rule  of  shipment  sug- 
gested, 145 

United  States,  early  railways 
in,  6,  41 ;  mileage  of  railways, 
7,  II,  175;  legislation  and 
management  of  railways  in, 
89-172;  relation  of  railroads 
to  state,  173-195 

U.  S.  Board  of  R.  R.  Commis- 
sioners,   efforts    to    create, 

133 
Uruguay,  railways  in,  ll 


Vanderbilt,  Mr.,  116 
Venezuela,  railways  in,  il  _ 
Von    Thiinen     on     conditions 
before  railway,  23 

Wadsworth,  James  W.,  120 
Warden,  Frew  &  Co.,  126 
Wars,  effect  of  railway,    117, 

1 39- 1 41;  reason  for  halting, 

140 
Western  Union  Telegraph  Co., 

monopoly  over  railways,  160 
World's    Almanac,     1909,    on 

national  debts  and  railway 

mileage,  14 


-^. 

^ 


^ 


■v 


